Structured Products Flashcards
What is a structured product?
are packaged products that have payouts and risk profiles that track the performance of an underlying asset. The underlying asset can be an equity, an index, a commodity a basket or many other securities.
Who are structured products designed for?
1) General retail investors
2) UHNW Investors
3) Customers of a single bank
Why are structured products created?
To meet the needs of investors that cannot be met with standardised products
Name 4 benefits of structured products
1) Protection of initial investment
2) Tax-efficient access to taxable investments
3) Enhanced returns through leverage
4) Reduced risk and volatility
What is the most common use of structured products today?
Portfolio diversification for HNWIs
SPs are gaining in popularity, but use is muted vs pre-GFC
What retail investors do not use structured products and why?
1) unsophisticated retail investors
2) Most don’t understand the risk/reward profile
What product in the 1990’s led to scrutiny of structured products?
Precipice Bonds as they caused millions in losses and compensation
What can structured products provide exposure to?
2 examples from the book (added value)
1) Equity markets with capital protection
2) Assets not available for direct investment (e.g. Gold & FX)
What is one major downside to most structured products?
Why is it a downside / risk?
Has to be held until maturity
- Low Liquidity
- Performance can change and investor is stuck
- May not be suitable for a clients needs & and they are stuck
What was created to try and solve the liquidity problem with structured products?
Listed Structured Products
which can help to provide greater flexibility to structured products.
What is a kick-out or autocall plan?
When a pre-agreed condition is met, the product will mature early.
e.g. if Index is >100% of value on anniversary date
Key points about structured products
- Bespoke from issuer to issuer
- Made to enhance reward or reduce risk
- Meet needs that standard products can’t
- Track an underlying asset (making them a derivative)
What are the 6 types of Structured products?
1) Index Based Trackers
2) Accelerated trackers (boosters)
3) Reverse Trackers
4) Dual Index Products
5) Capital Protected Trackers
6) SCARPs
What is an index based tracker?
Tracks the performance of underlying asset or index (similar to an ETF)
What is an accelerated tracker?
Only pays out at maturity (end must be greater than start value)
Income paid is called a booster
