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An element of fixed income exposure is beneficial in a well-diversified portfolio, BlackBee
BlackBee, the Irish investment firm which partners with financial advisers, institutions, charities, and private clients in delivering a range of investment solutions, has launched the latest structured product in its protected funds series. The product, 90% Protected Funds 6, which has a three-year investment term, offers 150% participation in a basket comprising two funds (Pimco Global Investor Series plc. Income Fund (EUR) Hedged Accumulation and Jupiter JGF Dynamic Bond).
Fund-linked structured products are in demand with the Irish investors. In 2016 they made up around 35% of the Irish market, according to SRP data, with – BlackBee aside – Bank of Ireland, BCP Asset Management, Cantor Fitzgerald, Merrion Solutions and Wealth Options, all offering products linked to funds to their clients.
Victor Danylyuk (pictured), investment analyst at BlackBee, gave SRP the rundown on the firm’s fund-linked structures, its platforms, the generation of investment ideas and payoffs, and the latest trends in the Irish market.
“[Fund-linked] products typically offer between 90% and 100% of capital protection guaranteed by the issuer,” said Danylyuk. “So, by risking only 10% of the capital (providing the issuer does not default before maturity), investors can get an exposure to different types of funds: multi-asset, fixed income, alternatives etc.”
From the end of 2016, with signals of changes in regulation and the companies own forecasts, BlackBee decided to produce a structured product that would be linked to portfolio managers specialised in fixed income strategies, according to Danylyuk. “In our view, there are a lot of merits to allocate into actively managed fixed income funds at the moment: the Central Banks’ policy uncertainty, low inflation, uncertainty within Europe,” he said. “Our product complements an Irish market and adds a significant level of diversification.”
The product is the sixth in the protected funds series and the firm continues to receive a lot of interest and business into 90% capital guaranteed products, according to Danylyuk. “Over the past 10 months we have produced various types of exposures within the 90%-range: 90% Protected Pharma, 90% Protected Bluechip,” he said.
“The fund industry, in general, has seen significant capital outflows in the past few years,” said Danylyuk. “The first half of 2017 has seen a change in that trend across the globe, and managers that we have identified are very capable and able to deliver capital appreciation into well-diversified investment portfolios of our investors,” said Danylyuk who noted that it is the firm’s house view that having an element of fixed income exposure is “beneficial in a well-diversified portfolio”. “We are planning to add more to the Yield section of our Portfolio Builder platform and continue to offer structured products linked to funds in the near future,” he said.
“There is not a lot of absolute value left on the market so we are focusing on the relative value, quality stocks or indexes that are relatively undervalued and have a greater upside potential,” said Danylyuk. “BlackBee developed a proprietary screening process and a unique platform (Portfolio Builder) where well-diversified portfolios can be built at one source.”
BlackBee’s investment generation ideas go through various stages of in-house research, screening, and testing and are based on the Diversification Matrix concept, where a specific portfolio gap is addressed, according to Danylyuk. “Once the idea is formed, it has to be defended in the Investment Forum, where investment professionals with 10+ years of experience, scrutinise every aspect of it.”
The result of such a continuous top-down and bottom-up investment process is an extensive number of investment ideas that address the market gap and most importantly diversification gaps within investment portfolios, according to Danylyuk. “However, there are only so many products that we can issue into our normal business cycles, and in addition to our Portfolio Builder we have developed a BlackBox where we store all of our bespoke and new ideas that selected financial advisers can access at any time, we launch these alongside our normal business cycles in order to
address specific needs of individual investors on a bespoke basis.”
According to Danylyuk, structured products allow BlackBee to create payoffs that could pay a good return even if markets have fallen to a certain extent. “For example, in the Alpha space, we offer a Twin Win structure that does exactly what it says in the name: at maturity, even if the worst performing stock falls by almost 40% from its initial starting levels, investors will still get paid 13.5% over three years in the case of Gold Twin Win or 10.5% over three years in the case of Global Food Twin Win,” said Danylyuk. “Nominal 3% to 4% returns might not beat the market, but it is still a decent return in the current market environment.”
Products in BlackBee’s index range provide investors with an opportunity to allocate to the global market and give them the choice to select either a fixed guaranteed return or an autocallable stepdown feature with a potential 7% annual coupon, according to Danylyuk. “We have been producing index-linked products since 2015 and many of those matured early paying between 3.5% and 5% semi-annual return. Index ranged products mostly are simple autocall structures.”
The firm has been successful in identifying trends in the market that result in continuous delivery of returns to its investors. “We see more and more brokers coming to BlackBee to build clients’ investment portfolios and the capital allocation is very well diversified between different types of payoffs: fixed and conditional, high capital guarantee and capital at risk,” said Danylyuk who thinks up to 70% of the Irish investors are risk averse and want (at least partial) capital protection.
“We have a great range of 90% protected ideas and a wide range of alternative investments,” said Danylyuk. “It is not advisable to put all your capital at risk and if someone wants to gamble, there are other ways to do that.” According to Danylyuk, BlackBee always promotes a well-diversified portfolio building approach: by sector, geography, currency, asset class etc.
“Our portfolio builder addresses this main concept and allows financial advisers to design portfolios and allocate risk accordingly to specific client needs. I would put greater weight on capital protected products.”
Source: Structured Retail Products, Author Marc Wolterink
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