Structured Product  

How structured products can perform in a shaky economy

This article is part of
Guide to structured products

How structured products can perform in a shaky economy

Recently published performance statistics do make a compelling case for advisers to at least consider making structured products part of their arsenal.

Research from Structured Product Review, found that of the 381 retail structured products that matured in 2018, none of them created a loss for investors.

Furthermore, 94 per cent of these maturities generated positive returns, with the average products achieving 6.33 per cent a year.

The average annual return for the those in the top quartile was 9.25 per cent.

Positive performance?

The performance data over longer periods adds further weight behind the argument. Average annual returns of 6.77 per cent and 6.23 per cent, over three and 10 years, respectively, are equally impressive.

Also, as was the case with performance over one year, no maturing structured product created a loss for investors over three years.

It is important to point out, however, that anyone invested in markets is likely to have witnessed stellar returns at most periods over the past 10 years, with the average equity fund far outstripping those mentioned above.

However, apples should be compared with apples, and so perhaps a more worthy comparison could be made with the absolute return fund sector, which has mustered an average annual return of 4.4 per cent, according to data from Financial Express.

On this basis, it is hard to argue structured products fail to warrant consideration.

Ian Lowes, managing director at Lowes Financial Management says: “We’ve all heard the adage that we should be looking at ‘time in the markets’, rather than ‘timing the markets’, so let’s assume we are looking at a buy-and-hold strategy. 

"I’m sure we all expect markets to rise over the medium to long term but none of us can say when and we know it could be a bumpy ride. Now consider a simple FTSE 100 linked autocall product with a maximum duration of ten years.

"On the first anniversary that the FTSE 100 is higher than the position recorded at the beginning of the term, the investment will mature with a 10 per cent gain for each year it has been in force.

"So, if markets are positive, it will mature in the early years but if they take a downturn, recovering some years later, investors will be well rewarded for their time, in what ultimately proved to be a market that didn’t fare to well. Only in the extreme circumstances that the counterparty bank defaults or the FTSE 100 falls and doesn’t recover for 10 years, will the investment fare poorly.”

Nick Johal, director at Dura Capital makes the case for the inclusion of structured products within a portfolio, and explains they can be useful for a variety of different investors.