In Sweden, there is a longstanding tradition to invest in equity, both through shares and investment funds, according to Mathias Lundberg, Director of Structured Products at Nordea Bank. But for the investor who wants lower risk in their portfolio, the common alternative is a regular deposit account, which generates relatively low returns over time. 10 years ago, the Structured Products team at Nordea sought to fill the gap between these two investment poles with Fasträntebevis, an alternative to the regular deposit account. In April, Nordea and Nasdaq marked the Fasträntebevis 10-year anniversary with an opening bell ceremony at Nasdaq Stockholm.
The Fasträntebevis is a type of credit linked note (CLN) that is linked to the credit risk in a company or index. For example, the Fasträntebevis on Volvo Cars is linked to the credit risk in Volvo Cars AB. When linked to an index, it is linked to the credit risk of the companies included in the index. In addition, the investor also faces credit risk on the issuer, Nordea Bank Finland Plc.
Each Fasträntebevis has a fixed term, normally five years at the time of issuance, with a fixed interest payment paid on a quarterly basis. If no credit event has occurred during the term, the nominal amount for each Fasträntebevis is paid back to the investor at maturity, in addition to the quarterly interest rate payments. The fixed interest rate is a great way for investors to determine the risk of their investment. Higher interest rates reflect higher risk, while lower interest rates indicate a lower risk for their portfolio.
Investors were eager for this new type of investment product. Shortly after its release, the turnover on Fasträntebevis increased steadily and became one of the most traded Structured Products at the time.
One of the key drivers of the Fasträntebevis is that it is offered directly on Nasdaq, while other structured products are sold through an initial subscription period. By using the exchange as a distribution channel, the product is cost efficient to distribute and easily introduced to the market. Easy distribution enables Nordea to provide clients with a significant number of different Fasträntebevis each year. Since its inception, Nordea has launched over 100 different Fasträntebevis with exposure to more than 50 different companies covering a spectrum of all types of credit risk exposures.
Another key driver of the Fasträntebevis is that it is traded in the denomination of SEK 10,000, making them accessible to the broader public. Since the launch, the product has served as a complement to traditional equity investments and serves as an easy way to spread risk.
Now, with a decade of exposure on the market, interest rates have picked up, translating to increased expected returns from these types of products. To celebrate, Nordea is now launching additional products that will be available on the exchange in April.
“In the last 10 years, we have delivered more than 100 different Fasträntebevis to our clients with different risk levels,” Lundberg said. “It has been a big success and well received by the market. We see a stronger demand for Fasträntebevis and other general structured products.”