Funds are growing in popularity across the globe as investors who are still wary following the financial crisis look for transparent and liquid investment vehicles. The increase in fund investments was verified for the UK market this month by data from Barclays’ stockbrokers. Recent months have seen renewed investor confidence in funds and April saw the highest funds trading on record.
Counterparty risk continues to feature highly in the minds of advisers and investors, especially in relation to structured products. Advisers need to be able to show they have followed a due diligence process that justifies the use of products backed by a particular bank.
The European Union plans to introduce the Key Information Document, a shortform document that will make investing in structured products easier.
Europe, home to the most developed market for structured retail products, is expected to stage a modest recovery in 2010, but sales will still not match the 2007 peak. The underlying securities markets remain volatile while regulators are taking a closer interest in industry practices.
Over the past couple of years, the financial world has seen big swings as equity markets have responded to the changing economic environment.
If you’re still sceptical about an equity market recovery without an economic one, it’s easy to see the appeal of structural products. In a nutshell, you get exposure to the upside, but with a capital guarantee of some form in case markets fall out of bed.
Experts in the structured product space are predicting a convergence between the asset class and traditional long-only funds, leading to the growth of structured funds, rather than the vehicles being positioned separately.
Structured products prove a profitable investment for retail and high net worth investors, but for this to be a reality it is important to keep in my mind that it is imperative the client understand the nature of the funds as well as potential problems.
Principal-protected notes continue to have appeal, with most interest allied to emerging markets exposure. As a recent example, Barclays issued a principal-protected note based on the MSCI emerging markets index with a five-year product with 100% participation in any rise in the index and 100% capital protection at maturity.
Inflation-linked indexes and products are making a comeback after volatility during the crisis kept many investors away, says Barclays Capital.