Agreement

Erste Fair Invest Garant 109.50% 23-28 is linked to the Solactive Erste Fair Invest Index VC and offers a guaranteed return of 9.50% after five years, while Erste Green Invest Garant 120% 2331, which is tied to the Solactive Erste Green Invest Index VC, has a slightly longer tenor, but its minimum return, at 20%, is higher too.

Additionally, both structures offer 100% uncapped participation in the rise of the underlying index.

“The yield curve has increased dramatically since May last year and that is good news for capital guarantee products,” said Uwe Kolar (pictured), head of retail and savings banks sales at Erste Group Bank in Vienna.

“You can offer higher coupons and higher participation and you can also offer 100% capital protection at maturity instead of 90 or 95%,” Kolar said.

The bank started with its Invest Garant series around two years ago, but back then, because the yield curve was so low, it could not offer more than 95% capital protection.

“Now we can offer these products with a two percent per annum minimum yield [paid at maturity] plus a participation on the index, which is something our conservative client base really likes.”

The underlying Solactive Erste indices are mixed asset portfolios of bonds and equities with a volatility target on top of them. The Solactive Erste Fair Invest Index tracks 50 international sustainable stocks, with a focus on high Social and Governance ratings, while the Solactive Erste Green Invest Index VC comprises of equity ETFs and ETFs with bond exposure.

“If volatility increases above a certain percentage the index is shifted partially in money market instruments. For that reason, we have less volatility and better pricing for the call spread, which is not the case for a pure equity index,” said Kolar.

Erste’s asset management company has a Fair Invest Fund and a Green

Invest Fund, which are pure equity funds with the story of ‘fair investing’ and ‘green investing’ respectively, according to Kolar.

“These are pure equity plays on growth stocks. Green Invest Fund is more on the E of ESG while Fair Invest Fund is more related to the S and G,” he said.

For those clients that do not want to invest in pure equity products Erste offers the same story as ‘Invest Garant’ with capital protection.

“We use the same headline for two different product classes.

“One is more for the equity investors and for the monthly savings plans – this is the asset management company, and for other investors who want to invest in the story we offer capital guaranteed products,” said Kolar.

“If you play the recession game, structured products still make sense, and capital guaranteed products even more.

“On the one hand side, you can fix the current yield environment and then you get a minimum coupon, or minimum redemption at a high level. On top of that you can fix the equity index on a lower level, so the participation is from a lower level than you had one year ago. It makes sense,” Kolar concluded.