Societe Generale’s new generation of auto-calls stirs appetite among investors
Recognized by the industry for its expertise and know-how in structured products (*), Societe Generale is innovating to diversify its range of autocalls, a type of structured product which is automatically redeemed by anticipation when certain market conditions are met and which has made the bank's investment product franchise successful.
In a market dominated by autocalls on traditional equity indices (Eurostoxx 50, CAC40, SBF 120, etc.), the Bank’s market engineers have built autocalls with the Euro Evolution Fund as their underlying, an ESG thematic fund actively managed by Lyxor Asset Management. “Making a managed fund the performance driver of autocalls is a real innovation and a concrete example of our drive to strengthen our structured products offer for the benefit of our clients”, stresses Jean-François Grégoire, Global Head of Market Activities at Societe Generale.
The Euro Evolution Fund allows investors to gain exposure to the performance of a portfolio composed of 50 companies from the eurozone selected among the 200 largest market capitalizations and with sufficient liquidity. The selection is based on extra-financial ESG quality criteria (sector exclusions and ESG MSCI rating) and financial soundness (profitability, operating margin, debt, etc.).
Fabrice Theveneau, Head of Equity Management at Lyxor AM, gives us the investment philosophy: “The Euro Evolution fund focuses on quality stocks that have historically outperformed markets while offering lower volatility. It also selects the stocks that score the best on ESG criteria , criteria that have become essential to ensure the performance of a fund. In an environment marked by weak economic growth and a strong technological disruption affecting the “value” sectors (oil, finance, telecoms), we expect a continuation in the performance of quality stocks and ESG criteria. The Euro Evolution Fund is therefore ideally positioned to offer high returns and strong resilience in a challenging environment.”
The fund has a risk management policy that operates at several levels: at the level of individual positions to balance the risk of the portfolio and through a global volatility budget limited to 15%. In addition, the fund has a monthly dividend distribution policy.
Pierre Gimenes, Head of Engineering for Equity Derivatives in Europe at Societe Generale explains the genesis of these products: ”Societe Generale’s structuring teams pitched Lyxor AM’s management teams with this new concept of a fund-based autocall, and then worked with them on the design of the underlying fund. This is a new kind of structured investment solution, combining active management with autocalls for the first time.”
The Euro Evolution offer launched in 2019 and quickly attracted investors: the amounts collected by distributors from retail and institutional investors since the beginning of the year have been exceptional. “Despite extreme market conditions related to the Covid-19 crisis, Societe Generale’s Euro Evolution Fund structured products have been a true commercial success. Nearly 1.5 billion euros in nominal value of products have been placed in France, Belgium and Italy through an extended offer of more than 200 products that attracted more than 80 clients, distributors, institutional and family offices“, highlights Pierre Gimenes.
The other key feature of the Euro Evolution fund is its risk management policy which is adapted to the profile of autocalls products. “The Euro Evolution fund, as an underlying of autocalls, simplifies the risk management of these autocalls, in particular thanks to the fund’s volatility budget. Compared to conventional equity underlyings, this mechanism makes it possible to reduce the impact of brutal market movements and significantly improve the conditions of the structured product, whether at the coupon level, recall barriers or capital protection. In a difficult and uncertain market environment, this is a real asset”, adds Pierre Gimenes.
The exceptional collections on these autocalls issued by Societe Generale also highlight investors' appetite for ESG. For the past two to three years, autocalls have been offering exposure to this very popular topic through ESG indices, such as the Euronext Euro 50 ESG EW Decrement 50 points or SBF Top 50 ESG EW Decrement 50 points. Euro Evolution autocalls provide diversification to investors of ESG structured products.
“Our strategy to diversify our range of autocalls products is paying off. Thanks to our engineering capabilities, we are able to innovate on emerging investment themes such as ESG with products that balance client interests, risk management and of course concern for the planet”, stresses Pierre Gimenes.
The success of the Euro Evolution offer, which focuses on a single investment strategy, opens the field of possibilities in terms of underlying assets and offers good development prospects for this new generation of structured products.