Structured products are combinations of traditional financial instruments (e.g. stocks and bonds) with one or more derivatives utilizing elements such as equities, indices, interest rates, foreign currencies, metals or commodities.
Depending on how financial engineers combine the various elements, you can structure the pay-off profile of a product. No other instrument lets you shape risk/return characteristics as precisely as structured products.
Structured products not only let you benefit from rising prices; they even let you optimize returns when the markets are moving sideways. You can even make money in falling markets. Various products can be used for this, depending on market expectations and the individual risk profile of the investor.
- You can access new investment themes and markets.
- You can secure positive returns in all market situations.
- You can micro-manage investment risk.
Structured products give you certain claims against the issuer, which is why issuer quality is so important. Risks vary depending on the type of product used. Some structured products are more suited to investors with a small appetite for risk, whereas others carry more risk. What is important is that you understand the risks involved with a specific product and its underlying, and that you discuss these with your client advisor.