Investing in Structured Products

  1. Structured products provide investors with a pre-determined risk/return profile

  2. Investors can select their market view and get a return besides buying or shorting the asset

    Bullish market

    Bullish market

    Neutral market

    Neutral market

    Bearish market

    Bearish market

  3. They allow investors to shape the distribution of their portfolio returns (1)

    Capital protection

    Distribution of daily returns of capital protected products

    • Average return is below that of a direct investment
    • No negative returns

    Yield increase

    Distribution of daily returns of yield enhancement products

    • Average return is above that of a direct investment
    • Small probability of extreme negative returns

    Leverage

    Distribution of daily returns of leverage products

    • Higher average return
    • Extreme results more likely

Pros and cons of investing in structured products

Pros

  1. Capital protection

    Structured products typically offer some form of capital protection. Depending on the investor’s preferences, structured investments are available to completely minimise risk exposure.

  2. Yield enhancement

    Structured products can offer a higher yield on sideways markets.

  3. Market access

    Investors can easily gain access to a new market or asset class that isn't available through domestic securities.

  4. Exchange risk management

    Exchange risk management

    Buying structured products or structured notes denominated in the portfolio currency can reduce exchange risk.

  5. Leverage

    Structured products can give leveraged exposure to markets.

  6. Shorting/range trades

    Shorting/range trades

    Investors benefit from falling or range-bound markets.

Cons

  1. Market risk

    Market risk

    The return from the investment is zero or even negative due to adverse market conditions. Investment advice on future market trends is needed to ensure the payoff is understood and reflects that view.

  2. Counterparty risk

    Counterparty risk

    The investment issuer does not repay the principal or return. An assessment of the issuer’s credit rating and of any other relevant information (credit default spreads, balance sheet strength...) are needed.

  3. Liquidity risk

    Liquidity risk

    There is only one market maker for the investment who does not provide an after-sales market or quotes a wide bid-offer spread. There are only buy-only investments where the issuer commits to making a competitive aftersales market in a place that is visible to the investor or their adviser.

  4. Credit risk

    Credit risk

    If the asset goes bankrupt, for example, the bond issuer within a portfolio does not repay the principal. Investors should assess the creditworthiness of the assets the solution is linked to (if disclosed) and their credit ratings.

Global leaders

BMO

BMO Capital Markets is a leading, full-service North America-based financial services provider offering equity and debt underwriting, corporate lending and project financing, merger and acquisitions advisory services, securitisation, treasury management, market risk management, debt and equity research and institutional sales and trading. BMO Capital Markets has approximately 2,400 professionals in 30 locations around the world, including 16 offices in North America. BMO Capital Markets is a member of BMO Financial Group (NYSE, TSX: BMO), one of the largest diversified financial services providers in North America with US$532.1 billion total assets and over 45,000 employees as at January 31 2017.

Website
www.bmo.com

Société Générale

Société Générale is one of the largest European financial services groups. Based on a diversified universal banking model, the group combines financial solidity with a strategy of sustainable growth, and aims to be the reference for relationship banking, recognised in its markets, close to clients, and chosen for the quality and commitment of its teams. Société Générale’s teams offer advice and services to individual, corporate and institutional customers in three core businesses: retail banking in France; international retail banking, insurance and financial services to corporate; and corporate and investment banking, private banking, asset management and securities services.

Website
www.societegenerale.com

SPIS

The Swedish Structured Investment Products Association (SPIS) was formed in 2008 as part of the Swedish Securities Dealers Association. The aim was to create common guidelines for the marketing material of structured products, these guidelines resulted in the SPIS industry code. SPIS main mission is to promote a healthy, efficient and competitive market for structured products, and SPIS works continuously to increase investors, regulators and other community stakeholders confidence in the industry by promoting transparency, comparability and understanding of structured investments.

Website
www.strukt.se

UK Structured Products Association

The UK Structured Products Association (UKSPA) is a membership organisation established in 2009 by the leading manufacturers of structured products in the UK. It has grown to 16 members today, who represent a significant majority of the overall UK structured products market. The UKSPA provides a unified voice for its members, working with regulators, financial advisers and other trade bodies. It serves a number of important functions including engaging with regulators, developing best practice guidelines, educating the investment community and providing a useful source of information for manufacturers, financial advisers and retail investors within the UK.

Website
www.ukspassociation.co.uk
Global leaders' profiles