Leonteq Sells Structured Products Linked to Pretend Portfolios

(Bloomberg) — Leonteq AG is selling structured products for investors who want to bet on successful unknown fund managers of pretend portfolios.

It began offering certificates in Switzerland last month that track a basket of “wikifolios” created on wikifolio.com. Users on the German-language website create phony funds that hold no assets and can be turned into investable securities through certificates that trade on the Stuttgart Stock Exchange.

The amateur investment pickers are trying to make a dent in an actively managed fund industry that endured a tough year in 2014. Investors allocated almost five times as much money to passive funds as to active strategies last year, according to Morningstar Inc. In the first half, 461 hedge funds closed, which was on pace to be the highest in five years, according to Hedge Fund Research Inc.

“Self-directed investors can create their own portfolios on wikifolio.com and also give others the opportunity to benefit from their expertise, without being professional fund managers,” said Manuel Duerr, who heads public distribution at Leonteq in Zurich. “In Germany, it’s a huge trend, and we also expect it to go to Switzerland in the next couple of years.”

Leonteq has issued $36 million of the securities denominated in euros, dollars and Swiss francs, according to data compiled by Bloomberg. The notes are tied to an index that selects as many as 25 wikifolios to track each month. Criteria for choosing them include average monthly return, how active the strategy is, and how much time has elapsed since the wikifolio manager last logged on.

Completely Transparent

Wikifolios, the holdings and trading history of which are completely transparent, can “own” stocks or exchange-traded products, and take long or short positions, according to Andreas Kern, who founded the site in 2012. Individuals have to be 18 years old to create one of the funds, he said.

There were 7,549 virtual portfolios on the site, with 40 to 50 run by professional money managers, as of Jan. 13, according to Kern. Managers go by names like “buffettboy,” “jokr” and “InfilTrader.” “BudFox’”s Money Never Sleeps fund has returned 128.1 percent since it started. “Student,” who claims in an online profile to be an actual student studying economics and electrical engineering, runs two wikifolios, one of which closed after losing 29 percent.

Tradable Certificates

More than 2,000 of the wikifolios can be invested in via certificates, which currently have a combined value of 307 million euros ($362 million), Kern said. To become a tradable certificate, a portfolio must be voted for by at least 10 users and approved by website administrators. After that, the portfolio is monitored to guard against the manager abandoning it or making irrational trades, Kern said.

Leonteq’s marketing materials indicate that its structured securities charge a 1.2 percent annual management fee on top of a 0.95 percent annual fee levied by broker Lang & Schwarz AG, the issuer of the underlying certificates. In addition, managers of the individual wikifolios can charge performance fees anywhere from 5 to 30 percent of their imaginary assets, according to Kern.

To contact the reporter on this story: Yakob Peterseil in London at [e-mail] To contact the editors responsible for this story: Charles W. Stevens at [e-mail]; Richard Bedard at [e-mail] Richard Bedard