Chief executive Christopher Taylor says: “In establishing Blue Sky Asset Management we undertook an extensive review of the UK structured product marketplace, looking back at the dynamics of the sector as it evolved over the last decade, and thinking ahead to what we believe will define the most successful companies in the future."
“Critically, our view of the UK structured products market is that it is currently polarised into two distinct camps; and that going forward the wealth management industry and discerning investors will increasingly differentiate between what we categorise as ‘easy products’, and ‘intelligent investments.'"
A sector that has been driven by distribution dynamics...
Christopher Taylor says: “Our view of the industry polarisation in the UK structured products arena is that it is based upon distribution dynamics not manufacturing capabilities."
“Headline figures from StructuredRetailProducts.com reveal that approximately 75 structured products issuers were active in the market in 2007, generating £7 billion of sales. But, breaking this down, we estimate that 80-85% of the products issued and sales raised in 2007 were controlled by High Street institutions, with the remaining 15-20% driven by independent structurers and asset management firms."
“The channel considerations, i.e. the distribution dynamics, are absolutely pivotal in assessing how the industry has developed – and, more pertinently, where the real value in the sector can be found by experienced advisers and discerning investors"
Take it easy
"To our minds", Taylor continues, "High Street Institutions have clearly dominated UK issuance and sales, but we feel that what defines these providers is not superior financial engineering ability but the fact that these firms ‘own’ proprietary distribution, i.e. they have X million ‘captive’ customers."
For firms that own distribution channels - not just customers, but also advisers – the structured products strategy has been simple. There is a clear focus on ‘plain vanilla’ products and maximising sales.
Advisers and investor need only ask themselves why there is so much FTSE-100 based issuance. Is it because these institutions believe FTSE underpinned products will deliver the best returns in the coming years? Patently not – at least, not to Blue Sky Asset Management’s minds. Or is it because these firms believe that ‘Footsie’ equates to the most comfortable investment story for a broad audience to relate to and therefore represents an easier sale? This is what Blue Sky Asset Management thinks ‘easy products’ are about ... maximising sales for providers.
The intelligent approach
The remaining 15% to 20% of UK structured product sales - around £1-1.5bn in sales in 2007 - is the domain of the asset management firms active within the independent intermediary channel.
The firms characterised in this area of the market do not have proprietary distribution channels. They do not own any customers - instead they are reliant upon independent wealth management firms and advisers identifying the merit in individual investment propositions and utilising these products with their clients during brief offer periods.
Christopher Taylor says: "The independent channel is research-driven, asset allocation focused, and insists upon investment integrity in propositions before it will use them."
"Providers active in this channel generally have to deliver more specialist investment propositions, or at least market leading value – and this is particularly so amongst high end intermediaries and wealth management specialists dealing with high net worth investors."
"At Blue Sky Asset Management we believe this means ‘intelligent investments’ - investments developed to maximise returns potential for clients, not sales for providers."
Research Backed Investment Thinking
Blue Sky Asset Management sits in the middle of the two polarised industry camps, with an important and differentiating feature adding value of note.
Taylor explains: "What is interesting to us in the UK structured products arena is that the firms with the greatest research capabilities are actually the firms doing the least with their research. The major, well resourced firms can research any market they like, but keep dispensing FTSE 100 time and time again, whilst the firms targeting the independent channel - where the more intelligent investment solutions are demanded - generally lack any capability, or even inclination, to undertake meaningful research."
"Despite this it is clear that research backed investment thinking is clearly a pre-requisite in identifying and developing value adding investment strategies. A major USP that we established immediately at Blue Sky Asset Management, therefore, was a proprietary and independent research capability."
"Research is embedded not just in our process but within our ethos and culture. This shapes and informs our structured investment strategies - and we believe that this will increasingly differentiate our approach and value vis-a-vis other providers over time."
Blue Sky Asset Management makes its research freely available to intermediaries. The ‘Blue Sky Observer’, a single page analysis of general areas of investment or economic interest, is published on a weekly basis, whilst the ‘Blue Sky Global Temperature’ is a monthly round up of global markets and asset classes, utilising a bespoke “Heat Map” approach to identifying ‘hot spots’ and ‘cold spots’ in markets, asset classes and sectors.
Current Blue Sky investments include its Protected Income Plan (PIP), now in its second issue – this innovative Plan was the first of its kind to utilise what Blue Sky believes is a short-term opportunity to offer investors a high income strategy, with 65% defined capital protection, based upon a bespoke portfolio of the UK’s major banking stocks, following the market events of 2007.
The PIP locks in either high annual income, fixed at 10% per year for a 6-year investment term, or offers a single ‘roll-up’ payment of 68% at maturity. The highest level of contingent capital protection at maturity ever offered in the UK allows for all five of the underlying stocks in the portfolio (HSBC, RBS, Barclays, HBOS and Lloyds) to fall by up to 65% without risk to capital.
Also available is the companies first open offer growth proposition, the Asset Allocation Accelerated Growth Plan (AAA). This compelling Plan provides advisers and investors with choice across all four main stock markets - the US, UK, Europe and Japan – with all markets offering significantly enhanced investment returns potential and reduced risk.
In fact, as with the Protected Income Plan, the terms delivered by Blue Sky Asset Management are the best the market has seen - investors in the AAA Growth Plan will benefit from 1000% gearing, i.e. 10x, in any market, up to 60%, with unlimited and geared returns added in each market above this point. Each market is 100% capital protected at maturity, unless the selected market index falls by more than 50%.
It’s unusual to see any provider offer the market differentiation – and market leading terms. Blue Sky Asset Management, however, has entered the UK structured products market offering not just one, but two, leading propositions. Its intention to operate at the forefront of the sector seems clear. Advisers and investors should look out for further products.
This article is sponsored by Blue Sky Asset Management. No recommendations are implied by publication of this text.