Structured notes are pre-packed investment strategies that manage risk by exposing the investor to a mix of equity indices, a basket of stocks, currencies, interest rates and commodities.
The investor’s required capital protection is one element that effectively determines the structured product. Another is the derivative which links the investment with an underlying index, a currency or a basket of securities.
A well-diversified portfolio will benefit highly from the introduction of structured products as they can add significant value when they fit within the overall strategy of the investor. Additionally, these products can also work to enable access to different assets classes in private client portfolios.
Structured Notes work to ensure that the investor is not exposed to concentrated counterparty risk – thanks to new types of products coming on the market. A new breed of structured Ucits funds holds a range of structured products, rather than being based on one auto call. This type of fund, based on a range of products, means providers can reduce the amount they have in collateral gilts, so they have more opportunity to generate returns than a typical Ucits III offering. There is also no exit date because the product is continuously being rolled forward.