WealthTech Privayam Monaco Structured products

Find the second post by Privatam : Structured products present an asymmetry of risk/return against investors

Reality: While there are no official consolidated figures that compute the average return of all structured products issued, reports that calculate historical returns of listed structured products in Europe provide compelling evidence of positive risk/adjusted returns.

+ Overall issue volumes of these products, which have consistently grown year-on-year over a long period confirm this data: investors would not increasingly rely on these instruments if they were not providing attractive returns. Of course, appetite for structured products, especially income solutions, has been further boosted by our world of low rates and tight credit spreads.

+ A common criticism to income notes, such as the one we looked at linked to Apple is the asymmetry of risk/return. While investors have to stomach the downside risk of Apple, in return they do not retain the upside potential as their return will be limited to the fixed income received (5%), so the critics say. This is neither good nor bad, it is simply the nature of the product: investors agree to swap an unknown return on Apple for a guaranteed income (5%), as well as a downside protection (40%).

+ Structed products are, per definition, customizable. This means that another note may be designed, still linked to Apple, which will provide a participation on the stock’s upside movement, while still offering a downside protection. We are then looking at a product with a very different risk/return profile. It is important to note that this new solution is not superior to the first, it just answers to different needs and constraints.

+ Still talking about asymmetry, one could easily argue that he would rather take the downside risk of Apple in exchange for a 5% guaranteed income over the downside risk of the Austrian bond (with a duration of 50) in exchange of a 1% income.

Source: Arthur bauch – co-founder Privatam

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