Structured products appear to be entering a period of organic and rapid evolution in how they are marketed, packaged, created and regulated. Corresponding legislation has not been consistent with the growth and development of structured products.
After seeing a more varied product mix recently, the latest offering for the US market has turned back to the ever-popular reverse convertible. There is a broad range of underlyings, but aluminium manufacturer Alcoa is the most frequently used.
There has been plenty of bad news around the structured products industry recently, but it’s not all negative.
There was trepidation among equity derivatives houses across the region early in 2009 when investors fled equity en masse. As implied volatility shot through the roof, institutional allocation for equities sank to levels not seen in decades. Numerous high net worth investors shied away from making aggressive bets which they had been so used to making in more bullish times.
Clients are still interested in algorithmically constructed indices that enable them to access hard to reach assets but they want to know what they are buying.
Bond and equity yields will be low for the coming year, caused by demographic changes and a decrease in the amount people are saving, the Barclays Wealth Equity Gilt Study 2010 reports.
During the first half of 2009, commodities strategies trailed only fixed-income and emerging-market equity strategies for total asset growth. This is noteworthy as it seems to indicate that investors have finally accepted commodities as an institutional-grade asset class.
Barclays Wealth Intermediaries third-party distribution director Roland Kitson has called for IFA portfolio planning tools to incorporate structured products more in their models.
More than two-thirds of advisers believe structured products are more attractive investments than 12 months ago, according to recent research from Barclays Wealth.
According to most experts, diversification in its simplest form is a risk management technique that involves mixing a wide variety of investments within a portfolio. Diversification should then allow for the same portfolio return with reduced risk.