Guaranteed capital no longer a must have

November 15, 2012

The changing economic environment is forcing cautious investors to take more risks within the structured products market.

Cautious investors are now willing to abandon the guarantee return of their initial investment in a bid to chase a higher profit. A growing band of investors appear prepared to trade off some of the risk protection they have previously resisted losing in favour of a potentially higher return on their money in the long term.

Not so long ago the definition of a typical cautious investor in the structured products market was someone who was not prepared to accept any risk to their capital. The most frequently sought after products were those that offered some sort of guarantee to return the initial investment.Guaranteed capital is no longer a must have. This has given rise to a new sector, called the ‘soft protection’ market, which is growing in appeal to a wider group of investors, according to industry experts.

Soft protection products often include a lower threshold, below which there is no capital protection for the investor, combined with a more attractive upside yield than a fully capital-protected investment.

Many clients prefer a balanced portfolio, some of which contain structured products. However, very rarely can financial planners guarantee clients 100 per cent capital protection as the rewards for this are so low that you can sometimes get better returns from a deposit accounts.