And the winner is...ETP! Leonteq shined in two categories at the Swiss ETF Awards 2023, including "ETP Provider of the Year". The jury was won over by the in-house innovation "ETP+". This clever extension of the classic ETP provides greater investor protection, making the financial product even more attractive to investors.
ETP stands for Exchange Traded Products and is classified as a participation product. These allow a wide variety of asset classes such as commodities, currencies and even entire sectors and regions to be easily and conveniently added to your portfolio. However, the best-known participation product in the structured products world is probably the tracker certificate. Without taking fees into account, the certificate also tracks the movements of the underlying asset on a one-to-one basis. Theoretically, trackers have an unlimited profit potential. But be careful: If the underlying asset falls, there is a corresponding risk of loss. Anyone choosing this type of participation product must therefore have positive expectations regarding the target market.
Speaking of target markets, tracker certificates, like ETPs, can be used to transparently include entire stock markets or a wide variety of themes in the portfolio. Megatrends such as disruptive technologies and hydrogen are just as accessible to private investors as special themes such as dividends or the exciting cryptocurrency market. At Leonteq, investors have access to a huge selection of around 270 different participation products.
Back to the function of the tracker. As already mentioned, the certificate behaves in the same way as the underlying asset. If the underlying rises or falls, the product also rises or falls. Consequently, the underlying and the certificate have the same risk/reward ratio. The underlying index variant and the currency must be taken into account. In the case of trackers on shares or stock markets that are based on a price index, the dividends of the members are not taken into account. This is not the case with performance indices. With this type of indices, distributions of the components are automatically included in the calculation. If the currency of the index differs from that of the underlying assets, there is an exchange rate risk. However, there is a solution for this: "Quanto". Products with this addition are protected against currency fluctuations, which can have a risk-reducing effect in the case of an equity index or basket comprising international securities.
Tracker certificates on commodities have a special feature. As these assets relate to futures contracts that have an expiry date, the certificate switches to the next date in good time before the futures expire. In technical jargon, this is referred to as "rolling". Futures are generally quoted above the current price due to an interest component, i.e. the longer the contract runs, the more expensive it is. If a certificate with a so-called "contango" now rolls onto the future that matures later, this is more expensive and therefore associated with costs and a corresponding loss of yield. The situation is different if the underlying asset is in "backwardation", in which case the subsequent futures are cheaper, which in turn has a positive effect on the performance of the certificate.
Another key factor of trackers is the composition of the underlying. Equity baskets are usually static and cannot be adjusted over time. This harbors two risks: Firstly, the weightings can shift significantly, resulting in a cluster risk. Secondly, there is a risk that the underlying may not adequately reflect the investment theme over time. If the certificate is based on an index, the index operator generally carries out recurring reviews and adjustments with regard to allocation and weighting.
Actively Managed Certificates, or AMCs for short, are special tracker certificates that always keep the underlying asset up to date. In this case, the index sponsor defines the strategy, which can be applied to almost any asset class, and actively implements it. For this purpose, it has a predefined investment universe at its disposal, from which the components are selected and the index adjustments are made at regular intervals. Holders of an AMC then participate fully in the performance of the selected strategy. However, the active process incurs costs, which are usually passed on to certificate holders in the form of a management fee and a transaction fee.
While basket certificates usually have a final maturity, index certificates have an open-end structure. This means that the investment horizon can be freely selected, which is an important factor, especially for long-term themes. Conclusion: Trackers are a transparent and cost-effective way of keeping up with the chosen market at all times.
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.