Stronger demand and lower supply in oil markets charged a rebound this year and inflows into commodity-linked structured products, while a brighter outlook drove demand for fixed coupon, range accrual and twin win notes on brent and crude, as Asian HNWIs sought new sources of yield outside of already concentrated fixed income allocations.
Understandably, concerns about demand—especially from China—and supply controls have sent oil prices spiralling since 2014 and the broader investment banking industry had retreated to varying degrees. Not for UBS.
“During a market downturn on major commodities, a lot of investment banks reduced focus while we did the opposite,” notes Nicole Tan, executive director, UBS, highlighting investors’ play on oil volatility this year. “We stayed committed and invested in the space, and shifted our strategy from focusing on corporates to investors and enhancing infrastructure to meet such needs.”
In addition to standard flow products, UBS’ established position in the market is underpinned by its two flagship indices tracking oil markets: the long-established Bloomberg Commodity Index and the UBS Bloomberg CMCI (Constant Maturity Commodity Index), which is rapidly gaining traction.
The investment bank’s success is also due to a broader initiative focused risk recycling and automation.
“This year, the strategic ambition for UBS was to reestablish structured solutions business in APAC across all client segments including intermediary and institutional clients,” says Hirofumi Takaku, APAC head of structured solutions at UBS. To that end, we had been focusing primarily on risk recycling and automation. By levering the unique flow from our private bank clients and recycling these risks to our institutional clients, our new focus on risk recycling has enabled us to become a top-tier flow derivatives house alongside already top-tier intermediary business. And on automation, we are seeking to automate pricing and execution while complying with all required regulations—technology, no doubt, is going to be a game changer for this business.”
Beyond its existing offering, the bank continues to grow its shelf and will seek place focus on its risk premia index, CMCI Essence, where investors long the CMCI index and short the corresponding benchmark index to invest in specific factors for better diversification, and a UBS Liquidity Premium Commodity Index (LPCI), that seeks to capture premium from congestion in traditional commodity indices (the index takes a long position in a Pre-Post Roll Modified Strategy, where rolls occur slightly before and after the periods of the 5th and 9th, respectively of every month).
Home to the largest broad-based commodity ETF in Europe and a leading provider of Delta-One products, UBS is 2017’s deserved winner of the award for Best Provider of Commodity-linked Structured Products.