Commerz launches its first structured product for UK market

Commerzbank Corporates & Markets (CBCM) has launched its first structured product targeted at the UK market. The UK Premia Fund is a Ucits III compliant fund linked to the Commerzbank Rolling Reverse Convertible Strategy index UK (Cobarc UK). The index is designed to replicate the returns earned from a systematic strategy of investing in reverse convertibles linked to the FTSE 100 index.

The reverse convertibles are one-month bonds based on the FTSE 100 index with 10% soft downside protection, allowing the opportunity to sell downside market exposure greater than 10% over a one-month period. If the FTSE 100 does not fall by 10% or more during the month, then the fund keeps the premium received by selling this exposure. If the fund touches or exceeds the 10% barrier, then a loss of 1:1 is incurred in line with the market. However, the product retains the premium for selling risk and is positively adjusted. For example, if 2% is received for selling downside risk and the market falls 10%, the fund is positively adjusted to 8%. Consequently, the fund always outperforms the market.

“In essence index returns are earned by selling implied volatility on the FTSE 100 and historically this is higher than the realised volatility,” explains Steve Muzzlewhite, UK and Ireland, Structured Equity Derivative Sales at CBCM. “This excess return is at its highest in times of market stress, so the index will always outperform the FTSE 100 in a falling market measured between any two rolls of the strategy, with the greatest excess returns likely to be generated in distressed and bear market conditions.”

The fund is initially available for institutional investors on a private placement basis, but is intended to be made available for UK retail investors as a Financial Services Authority (FSA) recognised Ucits fund, subject to receipt from the FSA of the appropriate regulatory approvals to market the sub-fund in the UK.