Structured Products are good for investors – Advisors are catching on

February 9, 2019

Structured Products are highly useful for investors. They combine a ‘low risk/ low return’ component (usually zero coupon bonds) with a ‘higher risk/higher return’ component (equity, FX, FI, commodity) to form a single, optimally tuned investment product that is very compelling and value adding for leading private banks and HNWI advisors.

Structured Products Remove Risk

Many investors have made structured products a standard part of their investment portfolio. In fact, they keep on buying products and continue reaping their many benefits. The most important of these are:

– Implementation of superior investment strategies for all market expectations (bullish, bearish, sideways)

– Allowing individualized design of the structure in line with the investor’s risk profile (conservative, balanced, aggressive)

– Easy access to different asset classes, investment themes, markets and sectors

– Ultra-short time to market, enabling investors to react to market shifts very quickly

Most structured products have a defined term or end date. Many also have early redemption (autocall) features. The fact that investors re-buy new products once existing products expire (rollover) is a strong sign of their value to investors. The aim of AdvancEquities is to make their offering more conveniently available to a larger number of investors. This will unleash substantial growth potential and better pricing for the overall structured product market.

Yields Up, Costs Down

Like in any other industry, production costs are driving client pricing. For structured products this is reflected in yield to the client. The mechanics are simple; for any given product the starting point is the ‘fair value’ as determined by a large market of participants. All production and distribution costs are priced-in, reducing the client yield accordingly. More efficient production and distribution will reduce costs to the product, thus giving the investor more yield, as they are passed on.

As an industry, structured products have an inherent interest in reducing costs.  This will increase yields to clients and making the offering more attractive for the investor. This will compensate the investor more fairly for the market and issuer risk.

Structured Products are in competition with other forms of investing, such as direct stocks, bonds, funds, etc. A more cost-efficient industry will make structured products more attractive versus competing investment instruments. This will be the main catalyst for renewed growth.