How far can the "snowball" roll?

In the era of low interest rates, investment banks and asset management businesses continue to innovate, and summing up relevant experience can provide considerable experience for the transformation and development of asset management institutions and even commercial banks. As one of the series of reports, this article focuses on the business opportunities of "snowball" type asset management products.

1. Structural design:

In line with the decline in equity market volatility, "Snowball" products are at the right time: Since the second quarter of 2020, "Snowball" products have been popular in the Chinese market. The average monthly sales amount of some head managers has reached 2 to 3 billion yuan, which reflects the essence of the market's increasing demand for absolute income.

(1) High winning rate and non-linear returns

Snowball products are subject to "knock-in" and "knock-out" within the time limit to determine product revenue. Take the “Snowball” product with a knock-out price of 105%, a knock-in price of 75%, and a CSI 500-target as an example. From 2015 to 2019, 71% of the contracts were knocked out in advance, and investors received an annualized positive return of 15%; 25% of the contracts suffered losses, and the average total loss during the contract holding period was 23.4%; 4% of the contracts were held to maturity, and investors received an annualized return of 15%. On the whole, 75% of the contracts have reached an annualized return of 15%, and the return characteristics are somewhat similar to traditional non-standard assets.

(2) Additional rigid redemption of income certificates

Income certificates of asset management institutions are on-balance sheet liabilities. The asset management agency is responsible for the redemption of principal and interest and has statutory responsibilities for it. Since it is an on-balance sheet liability, the income certificate is "constrained" by the balance sheet, and there is not much room for regulatory arbitrage. Therefore, income certificates of asset management institutions are “capital-guaranteed” assets that meet regulatory requirements.

Investors make money with low volatility.

For investors, if the underlying asset continues to fluctuate in a small range, it is more conducive to obtaining the agreed annualized return.

(1) Shocking market: In the most ideal situation, the stock index fluctuates frequently but does not deviate from the "knock-in and knock-out" range, and investors and institutions will achieve a win-win situation. Take the “snowball” products mentioned above as an example. From 2016 to 2018, it was a turbulent market. There was no “knock-in and knock-out” of these products. The holding maturity annualized rate of return is 15%, and the probability of occurrence is 5.8%.

(2) Bull market: Investors may trigger knockout points in advance, so they can only obtain fixed income during the holding period, which is not cost-effective compared to shock markets. For example, in the bull market from April to June 2015, the product was knocked out in advance, and the average holding period return was only 1.22%. According to historical data, the probability of occurrence of this situation is 57.7%.

(3) Bear market: The market unilaterally downward triggers knock-in, and investors will bear all losses. For example, in a bear market from 2017 to 2019, the average annualized return of the product is -7.82%. According to historical data, the probability of occurrence of this situation is 36.5%.

Asset management institutions obtain management fees and transaction income. For asset management institutions, the issuance of "snowball" products has three benefits:

(1) Management fee: "Snowball" products are mostly issued at R4 or R5 level, and the management fee generally reaches 1.5%;

(2) Benefits of Swing Trading: The agreed annualized rate of return of Snowball products is essentially the hedging cost of the asset management agency to hedge risks. Asset management agencies will frequently trade the underlying assets during the product's existence, and use the proceeds from volatile market transactions (buy low and sell high) to cover the cost of hedging. The income higher than the cost of hedging is the income of the asset management institution. According to a publicly available quantitative report of asset management institutions, an asset management institution with a winning rate of about 65% to 70% can achieve an annualized return of more than 15%.

(3) Unilateral market gains: in a bull market, the market moves up unilaterally, triggering a knockout. If the annualized income held by the asset management institution exceeds the agreed income of the product, the excess income will all belong to the institution. Institutions in a bear market do not need to pay agreed income, and at the same time do not have to bear the loss of the underlying asset.

2. Scale：

Since the second quarter, the scale of new issuance of "Snowball" products has increased significantly. In the first quarter of 2021, with the gradual cooling of the equity market, the market has entered a volatile market since the second quarter (the volatility rate of the CSI 500 in the first quarter was around 22.83%, which was a large range; the volatility rate in the second quarter fell to 7.22%), which provides an opportunity for the issuance of "Snowball" products. According to data from the Financial Associated Press, as of May 2021, China Merchants Securities has sold nearly 3 billion "snowball" products this year, with an inventory of about 3.5 billion (non-capital guaranteed structure, excluding small “Snowball" and other principal-guaranteed products). Minsheng Securities has successfully issued multiple phases of snowball structure products from the second half of 2020, including Minsheng Taxue Bank asset management series, with a cumulative scale of over 100 million.

It is estimated that the market scale of "Snowball" products is about 150 billion yuan.

Snowball products can be registered in income certificates or OTC options. According to data from the Securities Industry Association, as of the first quarter of 2021, the existing scale of income certificates totaled 411.61 billion yuan, of which 35% were non-fixed income. The estimated snowball product scale was about 72.03 billion yuan. In addition, the amount of over-the-counter financial derivatives remaining in the market is approximately 811.76 billion yuan, of which 47.58% are stock indexes. Assuming that about 20% of them are snowball products, the scale is about 77.28 billion yuan. Through the calculation of the above two channels, the total scale of "Snowball" products is about 150 billion yuan. If a more radical assumption is given, the current maximum possible market size of "snowball" products is about 500 billion yuan. Calculated based on the requirement that the income certificate does not exceed 60% of the net capital of the securities company (at the end of 2020, the net capital of the securities industry is about 1.8 trillion yuan), and the requirement that the scale of the OTC individual stock options business corresponding to proprietary equity securities and the derivatives shall not exceed 50% of the net capital (operating business for 3 consecutive years and continuing to comply with regulations), the possible maximum scale of the "Snowball" product is about 2 trillion yuan.

"雪球"能滚动多远?

低利率时代，投行和资管业务创新不断，总结相关经验可为资产管理机构乃至商业银行转型发展提供鲜活的经验。作为系列报告之一，本文聚焦“雪球”类资管产品的业务机会。

1、结构设计:

配合权益市场波动率走低，“雪球”产品恰逢其时:2020年二季度以来，“雪球”产品在我国异军突起，部分头部管理人月均销售金额达到20~30亿元，本质是市场对绝对收益的需求在提升。(1)高胜率与非线性收益:雪球产品以期限内发生敲入、敲出判定产品收益，以敲出价格为105%、敲入价格75%、挂钩标的为中证500的“雪球”产品为例，2015年至2019年间，71%的合约提前敲出，投资者获得年化15%的正收益;25%的合约发生亏损，合约持有期总损失均值为23.4%;4%的合约持有到期，投资者获得每年15%的收益。综合来看，75%的合约达到了15%的年化收益，收益特征上与传统非标资产有一定相似。(2)收益凭证刚兑加持:资管机构收益凭证属于表内负债，资管机构负责本息兑付，并对其负有法定责任。既为表内负债，那么收益凭证就有资产负债表的“约束”，监管套利空间不大，资管机构收益凭

证是符合监管要求的“保本”资产。

投资者赚的是低波动率的钱。对投资者来说，标的资产以较小的幅度一直横盘波动，更利于获取约定的年化收益。(1)震荡市:最理想的情况，股指频繁波动但不脱离敲入敲出的区间，投资者与机构双赢。以上文提到的“雪球”产品为例，2016~2018间为震荡市，产品未发生敲入与敲出，持有到期年化收益率为15%，发生概率为5.8%;(2)牛市:投资者可能会提前触发敲出点，仅能获得持有期的固定收益，相比震荡市不划算。如2015年4-6月为牛市，产品提前敲出，持有期收益均值仅为1.22%，据历史数据情况发生概率为57.7%;(3)熊市:市场单边下行触发敲入，投资者将承担所有亏损，如2017-2019年为熊市，产品年化收益均值为-7.82%，据历史数据情况发生概率为36.5%。

资管机构获取管理费与交易收益。对于资管机构来说，发行“雪球”产品有三方面收益:(1)管理费，“雪球”产品多以R4或R5级发行，管理费普遍在1.5%;(2)波段交易的收益，雪球产品中约定的年化收益率本质上是资管机构对冲风险的对冲成本，资管机构会在产品存续期间频繁交易标的资产，利用震荡市交易(低买高卖)的收益去覆盖对冲成本，而高于对冲成本的收益即是资管机构的收益。据公开的资管机构量化报告显示，约65%~70%的胜率资管机构可以实现15%以上的年化收益。(3)单边行情收益，牛市中市场单边上行，触发敲出，而资管机构持有年化收益超过产品约定收益，则超额收益则全部归机构所有;熊市中机构也不需支付约定收益，同时无需承担挂钩资产的亏损。

2、规模空间:

二季度以来“雪球”产品新发行规模大增。2021年一季度，随着权益市场逐渐降温，二季度以来市场进入震荡市(一季度中证500波动率在22.83%左右，幅度较大;二季度波动率降至7.22%)，这为“雪球”产品的发行提供了契机:据财联社数据显示，至2021年5月招商证券今年已销售近30亿“雪球”产品，存量规模约35亿(非保本结构，不含小雪球等本金保障型);民生证券则从2020年下半年开始成功发行多期雪球结构产品，包括民生踏雪行资管系列，累计规模破亿。

测算“雪球”产品市场规模约在1500亿元。雪球产品可以登记在收益凭证或场外期权内。据证券业协会数据，截至2021年一季度，收益凭证存续规模共4116.1亿元，其中35%为非固定收益类，估测雪球产品规模约在720.3亿元;场外金融衍生品存续约8117.6亿元，其中47.58%为股指类，假设约有20%为雪球产品，则规模约在772.8亿元，合计1500亿元左右。给与更激进的占比假设，“雪球”产品当前最大可能市场规模约为5000亿;而跟据收益凭证不超过证券公司净资本的60%(2020年末证券业净资本约1.8万亿)，场外个股期权业务对应的自营权益类证券及衍生品规模不得超过净资本的50%(开展业务连续3年且持续合规)来计算，“雪球”可能规模上限约2万亿。