The top ten performing products in the US in 2019 to-date are all linked to single stocks and paid returns of up to an equivalent of 30.74% per annum. All of the products in the top ten are "Knock Out Reverse Convertible" structures which pay a fixed income stream throughout the life of the product up until maturity or until the product is called on one of the autocall opportunities. Nine of the top ten products are distributed by UBS Financial Services and issued by UBS.
General Electric lights up the way
The top five performing products of the year so far are linked to General Electric. These are very similar structures, all striking between 12th and 27th November 2018 and all calling at the first autocall opportunity which fell between 28th January 2019 and 15 February 2019. These products all paid income of between 20.55% and 28.06% per annum and had first autocall opportunities after two to three months. They all have a 60% European barrier and autocall trigger levels of 100% of the strike level. Given the similarity of the products in terms of underlying, dates and product type it is not surprising that performances are very similar, and given the stock performance therefore all very strong. They go to prove that structured products "Do what they say on the tin".
This set of high performing products all struck when the stock was at its lowest point of the period. The stock performances measured to the first autocall date for this set of products showed gains of between 20% and 25%. The timing of these plans may have been tactical given the number or products issued within a short period of time but with good results. However it should be remembered that because of the strong performance of this stock direct investment in the underlying would have yielded much higher returns (at a correspondingly higher level of risk).
A further three of the top ten performing products were linked to the performance of Brazilian companies, two to Petroleo Brasileiro and one to Banco Bradesco Brazil. All the products matured on their first autocall opportunity. The stocks have had quite different years in terms of performance with Banco Bradesco Brazil on a steady upward trend since June 2018 whereas Petroleo Brasileiro has been much more volatile. However these structures can perform well in either environment as long as the stock is above the required level on the required date.
The remaining two products in the top ten are linked one to Netflix and one to Canadian retail company Lululemon Athletica inc.. These paid returns equivalent to 20.16% p.a. and 17.5% p.a. after four and one month respectively.
Auto-calls the new short term weapon
Where traditional 3-6 month reverse convertibles used to dominate the US market in terms of issuance these potentially longer term autocall versions are now the most common product type in the US. The single asset and multi-asset worst of versions of these phoenix autocalls account for around 30% of product issuance and 21% of the US market by sales volume. As shown by the examples here these products are often short maturity, high yield opportunities linked to one or more stocks using the volatility to generate an income stream rather than requiring growth in the underlying assets to generate returns.
The analysis here compares and ranks products by per annum returns, which tends to mean that such short dated products will often account for many of the best (and worst) performers. Investors looking for long term returns should bear this point in mind.