This new structured products engine puts Artificial Intelligence (AI) and big data at the fingertips of intermediaries, so they can build personalised solutions for clients. Rolled out last autumn, it has attracted higher volumes in the recent volatile markets.
It’s often the case that a crisis proves a testing ground for innovation. For Spark, Julius Baer’s new structured products engine, the exceptional turbulence of March and April 2020 was just such a time.
These months saw a big uptick in intermediaries’ use of the unique system that personalises structured products for individual clients. Following Spark’s recent launch, a number of intermediaries registered to use the linked Derivative Toolbox trading tool for the first time, and trading volumes grew. Reflecting market conditions, the most popular searches on Spark related to volatility.
Spark is currently unique – in creating structured products specifically to meet the personal requirements of investors. There are other platforms that allow intermediaries to build tailored structured products, but nothing that creates them to meet an investor’s broad preferences, in areas such as preferred investment style, risk tolerance and so on.
Sifting 35 million plus possibilities
This pioneering structured products engine was designed by the in-house Julius Baer team after consultation with intermediaries to establish their needs. Using an Artificial Intelligence (AI) algorithm and big data, it quickly scans over 35 million possible combinations to build the product that suits a client’s needs.
Originally launched in Switzerland in September 2019, it was then made available to other locations in February 2020, just before the crisis broke. The minimum size for a personalised structured product, built by Julius Baer, is 20,000 swiss francs, euros or US dollars.
“Now in corona times we are having a lot of online video sessions, where external asset managers view the tool, and their feedback is very, very positive because there is no similar tool at the moment, certainly in Switzerland,” explains Cinzia Zandonella, Julius Baer’s Derivatives Sales Specialist.
“Nothing else provides the best personalised solution in a way that’s so easy to use. Spark is a fast, comprehensive solution, giving access to an optimiser, and allowing searches by sector or markets. You couldn’t do that before.”
Spark enables intermediaries to start by inputting the investment outcome a client wants. Then the AI engine quickly generates a shortlist of ideas to match the investor’s requirements. Preferences can be input in terms of intuitive investment styles, such as ‘fallen angels’ or ‘attractive opportunities’. Alternatively, intermediaries can input factors, including ‘momentum’, ‘volatility or ‘dividend yield’.
But it’s also possible to simply request the engine to perform a search. For example, a search could be ‘best healthcare stocks with a Julius Baer buy rating’.
Once a broad concept for a structured product has been selected, it can be refined. Underlying securities can be added or excluded. Additionally, product parameters such as tenor, strike, barrier and callability can be adjusted. After the structured product is judged complete, the trade can be automatically executed through the Derivative Toolbox.
On an ongoing basis, Spark is continually improving to give intermediary clients the full range of features that they need. There is an ongoing consultation with intermediaries, and the structured products engine is virtually in a state of perpetual development.
To meet the growing demand for sustainable investments, for example, a new environmental, social and governance (ESG) investment style has been added, using data from several different ESG ratings providers. Looking forward, there are plans for Spark to include participation products for the first time – so far it has been limited to yield enhancement products. The engine is currently learning investor’s preferences and will automatically suggests suitable structured products.
“The asset manager saves a lot of time, because you have a lot information just built in one tool, so you don’t need other tools to be open,” says Zandonella.
- Spark is a pioneering structured products engine that leverages AI and big data.
- Unlike other platforms, it allows intermediaries to personalise products for clients.
- Julius Baer is continually improving Spark, continually listening to feedback from intermediaries.