Structured Products are classified as alternative investments and have the potential to achieve higher returns compared to other traditional investments.
They are issued by financial institutions such as investment banks and are linked to the performance of an underlying asset such as an index or stock, offering exposure to the financial markets but with a level of protection you wouldn’t have if you invested directly.
Structured Products offer a versatile investment option that can be tailored to suit your unique risk parameters, allowing you to customise your exposure to various underlying assets and risk profiles. Furthermore, structured products can be designed to meet specific return goals. Whether you are seeking regular income or long-term capital growth, there are structured products available that can align with your investment objectives.
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A conditional income product is designed to provide the investor with a steady stream of income payments during the investment term while providing a pre-defined level of capital protection. The payments are conditional on the performance of the underlying assets. This product can be designed to give the investor the potential for quarterly, semi-annual, or annual income. Conditional income products are widely used because they offer investors the potential to achieve a heightened level of income over traditional savings for those willing to take on a known level of additional risk.
Growth products are designed to deliver the investment return at maturity while providing a pre-defined level of capital protection. The payments are conditional on the performance of the underlying assets. This product offers no income payments during the term of the investment.
Growth notes can provide the opportunity for more significant returns than similar income based notes.
A fixed-income product is designed to pay a fixed amount at regular intervals during the term of the product regardless of the performance of the underlying asset.
The Memory Feature with Conditional Income Products
The risk of not receiving income, however, can be too much for some investors. This is where a “memory” feature comes in handy. A product can be created in such a way as to compensate for any missed income payments where the condition for payment was not achieved. A product can promise to pay income according to the conditions set out at the start but recoup all previously missed income payments if this condition is met at a future observation date.
The Autocall Feature
The autocall barrier is a feature commonly found in structured products that offers the potential for an early redemption based on the performance of the underlying asset. When you invest in a structured product with an autocall barrier, a specific barrier level is set for the underlying asset. If, on any of the pre-defined observation dates during the investment’s term, the price of the underlying asset reaches or exceeds this barrier level, it triggers an autocall event. When an autocall event occurs, the structured product is redeemed early, and the investors receives back their initial investment along with the agreed-upon return. However, if an autocall event does not occur during the investment’s term, the product will continue until its maturity date. Autocall barriers can provide investors with the potential for shorter investment durations. They offer the opportunity to capture positive market performance and achieve early redemption.
The Final Level Barrier (European Barrier)
The Final Level, or European Barrier, is a capital protection feature designed to protect the investor’s capital to a certain level, offering downside protection and observed at the end of a product’s term if the investment has not matured early (autocalled).
This capital protection feature is achieved through the use of a predetermined barrier level. The barrier level acts as a threshold or trigger point whereby as long as the performance of the underlying asset remains at or above the barrier level at maturity, the investor’s initial capital is returned in full.
This means:
However, it’s important to note that if the barrier is breached as the performance of the underlying asset falls below the barrier level on the final valuation date only, the investor’s capital will be exposed to potential losses. In such cases, the investor may receive a reduced payout at maturity.
Structured Notes are often exposed to fluctuations in the financial markets, and the performance of the underlying asset can go down as well as up.
Can you exit the Product?
Structured products offer liquidity, which means you can exit the product during its life. Please be aware that you may get less than you put in as the product has been created with a fixed term in order to meet its objective. In this scenario, please speak to your financial advisor, who will be able to offer you guidance.
Structured products can be tailored to meet specific investor preferences and objectives. They provide flexibility in terms of underlying assets, risk-reward profiles, and maturity dates, allowing investors to customise their investments according to their risk tolerance, return goals, and market views.
Many structured products provide regular coupon payments or income streams. These products can be attractive to investors seeking stability or as a complement to other income-generating investments.
Structured products come with clear documentation outlining the terms, conditions, and potential outcomes. This transparency enables investors to assess the risks and rewards associated with the investment and make informed decisions.
Structured products offer access to a wide range of asset classes and markets, including equities and indices. This enables investors to diversify their portfolios by gaining exposure to multiple underlying assets within a single structured product.
Structured products can be tailored to include built-in risk management features such as capital protection or downside buffers. These features provide downside protection and enhance risk-adjusted returns.
Portfolio Optimisation Investors can optimise their overall investment strategy by incorporating structured products into their portfolios. These products can serve as building blocks for achieving specific investment goals, diversifying risk, and enhancing the portfolio’s risk-return profile.
This material is for information purposes only and does not constitute an invitation, offer or solicitation to engage in any investment advice or recommendation, or an offer of solicitation for a transaction in any financial institution.
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