In recent years the Actively Managed Certificate (AMC) has gained steadily in importance on the Swiss market for structured products. Investors welcome the opportunity to invest in an actively managed portfolio with just a single order. Leonteq has been committed to this trend from the start. For its AMCs, the issuer generally relies on the expertise of Swissquote. The stock market strategists working for the online broker have built up a sort of ideas factory, constantly picking up the latest trends and interesting trading strategies and crafting rule-based indices from them. In turn, Leonteq offers customers the opportunity to focus on the relevant theme through affordable investment products. The latest product of this collaboration is a tracker certificate on the Swissquote UK REITs Index. The participating instrument was issued on 28 February.
A good one month later, the certificate is trading more than a fifth below the issuing price. Coronavirus had taken a foothold in more and more countries outside China almost simultaneously with the launch. As is known, the pandemic put the whole world, and equity markets with it, into a state of emergency. After a little delay, Great Britain, too, went into shutdown. To that extent it is no surprise that the Real Estate Investment Trusts (REITs) contained in the new certificate also and especially came under immense pressure. Sixteen companies are represented in the starting line-up of the Swissquote UK REITs Index. They were selected by the relevant experts based on a variety of criteria. A candidate generally needs to meet certain yardsticks in terms of market capitalisation and trading liquidity. As regards content, the index targets companies which carry on significant business activities in the British property sector. To achieve this goal, Swissquote filters the selection universe based on factors such as business strategy and sales breakdowns. In support of this decision-making process, the index sponsor resorts to a raft of quantitative calculations, including portfolio optimisation based on the mean value variance.
Swissquote reviews the benchmark in the quarterly scheduled rebalancings, adjusting it where necessary. Derwent London should remain a firm fixture in the index for the time being: the company has a commercial property portfolio that is geared heavily towards the centre of London. The total surface area comprises more than half a million square metres. According to its own figures, that makes Derwent London the largest REIT focused on the British capital. Although the market was booming until recently, particularly in the metropolis, the stock was unable to escape the sell-off – Derwent London fell just under 28% in the space of one month. The company's capitalisation has thus shrunk to just below GBPbn 3.4. By comparison, at the end of 2019 the company was putting its portfolio at a value of GBPbn 5.5. It goes without saying that recent developments have cast doubt on how realistic this approach still is. According to Jefferies, Covid-19 could lead to a wave of overvaluations in the European property sector. The broker is anticipating more of a "sharp shock" rather than a downward trend lasting years. The sector could see consolidation set in as soon as the key ratio of NAV can be relied upon again.
Jefferies has this scenario already on its radar for the 2nd quarter now under way. The analysts reckon there will not be the huge acquisitions normally seen in the sector. Instead, the consolidation would take the form of smaller privatisations. Among the REITs rated by Jefferies as "Buy" are Derwent London, Great Portland Estates and Land Securities, which are also three members of the Swissquote UK REITs Index. The analysts had previously judged these three stocks as "Underperform" – so the trio were given a double upgrade. As an argument for the sector, Jefferies also refers to the relatively attractive distributions. A glance at the dividend yield of the property companies included in the Swissquote UK REITs Index (see table) suggests the experts are right. The possible distributions also benefit the holders of the tracker certificate, as they result in an adjustment of each underlying stock. The product, which is quoted on the SIX Swiss Exchange, comes with a management fee of 0.80% p.a. The index agent also charges 0.15% (relative to the hypothetical nominal volume of the relevant transaction) when the benchmark is adjusted. For this small contribution, investors are given an opportunity to take a long-term, actively managed and also diversified position in the British property sector.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.