Looking for information and opinions on certificates marketed by Aletti Bank? In this article, I analyze the banking institution’s product offering, reflecting on the risks that the average investor often underestimates.
Certificates are very complex instruments, much more than the usual financial products you are used to (shares, bonds, funds, etc.). Before starting, I suggest you review the basics by reading this in-depth analysis: “What are Certificates”.
It is understood that if you want to invest you will have to become an expert in this field, otherwise you will risk doing more damage than good. Let’s get to the point!
This article talks about:
The bank offer of certificates
For information purposes, Banca Aletti has no longer dealt with the issue of certificates since 2018, a task that has passed to Banca Akros, specialized in the activities of corporate e investment banking.
Both companies are part of the Banco BPM Group, therefore we say that it is the same distributive circuit. Now Aletti deals exclusively with private banking services for a more effective division of tasks.
With this parenthesis closed, let’s go into the merits of the Akros offer, the real market maker. The proposal of certificates it is broad and articulated, it includes numerous types of instruments with different characteristics, which give access to a diversified range of underlyings.
In fact, certificates are derivative instruments which base their performance on an underlying (shares, bonds, indices, commodities, etc.). All certificates are designed to satisfy a specific need, knowing which one is yours is essential for choosing the right product.
1) Certificates for those seeking capital protection
Banca Akros propone numerous certificates which provide for the protection of the capital at maturity, in an unconditional manner, i.e. independent of various clauses.
When the capital is protected, it means that upon expiry of the certificate, if the underlying is at a loss, the customer still receives a refund of the invested capital for a percentage equal to or less than 100% of the certificate issue price.
2) Partially capital protected certificates
Some certificates provide security only partial. In this case, the refund is conditional on whether or not the “Barrier” event occurs. The Barrier is the minimum limit that can be reached by the value of the underlying.
If during its life or at maturity, the underlying should perform negatively and fall below the Barrier threshold, then the protection clause would be cancelled.
At this point the situation can get worse, in the sense that, if at the expiry of the certificate the price of the underlying is lower than the invested capital, in the absence of coverage the customer suffers a certain loss.
If, on the other hand, the Barrier event never occurs, when it expires, the certificate guarantees the return of at least the invested capital, regardless of whether the price of the underlying has gone down or up compared to the initial one.
3) Certificates for those looking for periodic amounts
Some Akros certificates allow you to get gods periodic streams (unconditioned coupons or coupons). The holder can collect them periodically for as long as he holds the securities in his portfolio.
- I certificates con random coupons may benefit from sideways movements in equity markets;
- I certificates con unconditional coupons they pay a fixed periodic amount, independent of the value of the underlying.
4) Early redemption certificates
Certificates with this feature make the early repayment (before maturity) with an amount greater than the value of the underlying.
This extra-gain is realized in the event that the asset of the underlying registers a value higher than a predetermined level. It is sufficient for this event to occur on the first valuation date for the certificate to be redeemed.
If this does not happen, just wait for the next evaluation date to benefit from a higher earnings. In fact, on each valuation date, the coupon incorporates the coupon envisaged on the previous date (memory effect).
If the certificate is not repaid in advance, various scenarios may arise upon natural maturity with different forms of capital protection depending on the type chosen.
Through the site it is possible to select, from the menu, the certificates that correspond to your needs. I cannot, here, review all the products because there are so many and on average they have a fairly short life cycle. The certificates must be analyzed individually by the interested party, and must be compared with each other.
Equity Premium Accelerator Coupon Certificates
The new issue of Banca Akros refers precisely to these certificates, which allow you to invest in main actions listed on European markets. They allow investors to obtain quarterly coupons linked to the performance of the underlying share.
Furthermore, from the month of June 2023, if on the intermediate observation dates the value of the underlying is equal to or greater than the initial value, then the certificate matures early and repays the issue price, increased by all future premiums that could have been receive if the certificate has expired.
These certificates are listed on Cert-X of Borsa Italiana, and have an issue price of 100 euro.
But how do these certificates work?
Each certificate is different, but if we were to dwell on some scenarios, we can see how if the value of the underlying is below the coupon threshold level, then the certificate does not pay the quarterly premium, while instead if the value of the underlying is equal to or greater than the coupon threshold level then the certificate will pay the quarterly premium.
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Useful tips for investing with certificates
After having briefly illustrated how the offer is structured certificates of Banca AkrosI want to spend some time explaining how to choose the right certificate.
#1 What do you really need?
The first important thing is to have clear in your head what you are looking for and why. The product you are considering for investment must align with your goals.
You have seen that certificates can be used with different strategies and approaches, can you recognize yours? Sorry if it seems like I’m treating you like a newbie, but most investors don’t know why they do things.
#2 In addition to the intrinsic risk, it also considers the issuer risk
The certificate is an instrument issued by a bank, therefore it is linked to the issuer’s ability to honor its obligations towards the customer. Capital protected certificates are also subject to default risk.
Of course, these are remote hypotheses, but if you have large capital to protect it is better that you diversify the risk on similar instruments issued by several banks.
#3 If you can, just avoid the placement
The heaviest impact of commissions on certificates occurs at the time of placement, when even 3-4% can be paid just for the issue.
It means that out of €100 you invest, €3-4 is withheld immediately by the bank.
Since certificates are publicly traded instruments such as stocks, bonds or ETFs, there is a secondary market where you can possibly purchase already issued instruments.
#4 Watch out for liquidity
Being a relatively “young” market, some certificates may not be traded so it may be difficult for you to sell them ahead of time.
#5 Nobody gives you anything
Typically, sellers promote the certificates by noting their ability to achieve higher returns than other financial instruments and/or by praising their risk hedging.
Be wary of sellers because in finance no meal is free. If they offer you these tools by leveraging these aspects, they certainly do so because they have an economic return.
#6 Read the KIID carefully
Each investment product is accompanied by its prospectus. Inside you will find the description of the certificate, the level of risk, the fees to pay and other relevant information. Don’t leave anything to chance, and if you don’t know how to read a KIID, no problem, Click here.
#7 Do I recover capital losses? It’s not an obligation
Another workhorse with which certificates are offered is their suitability for the recovery of capital losses. In fact, they generate different incomes and can offset past capital losses on other instruments.
The truth that no one will tell you is that you don’t invest to recover capital losses, especially if they derive from wrong and/or risky investments, the recovery of which often requires a much higher degree of risk than the original one. I talked about it inspecific article on the recovery of capital losses.
My views on certificates
If you are considering investing in certificates of Aletti (Akros) and you need an opinion, I’ll be happy to tell you what I think and do.
Personally, I don’t invest in these tools because I failed to perceive its usefulness in relation to my strategy.
Sure, this is what I do, it’s not a universal rule, but if you’re following an investment method similar or the same as mine, and maybe you’re evaluating the service”Fast Investments Planner”, know that certificates, in all their nuances, are not contemplated.
I consider the certificates, to date, potentially interesting for the protection part but, since they are complex instruments, they must be “handled with care”. Those with own leverage I’m not interested because I don’t carry out trading activities.
You see? I know exactly what I want and what I need. That’s why I have a realistic opinion on the tools available on the market. If you don’t have the faintest idea what you are looking for, it is impossible for you to benefit from a certificate or any other investment product.
You must know that banks need to raise cash to support their business, and the most effective way is to feed their customers products on which they earn a lot.
Certificates belong to this category because they allow banks to earn thanks to the irrational behavior of their customers who, since they find themselves with complex financial products in their portfolios that they do not understand, end up playing their game.
Certificates may be suitable if and only if certain subjective conditions of the investor exist, if they are included in a well-defined strategy and if there is good diversification which avoids issuer risk.
If you are at the beginning of your investing journey and, in light of this article, you are feeling confused, I recommend that you continue reading with the following introductory articles:
I salute you and wish you good investments.
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