Structured Products
As the name implies Structured Products are structured to achieve a pre-determined outcome.
They are made up of cash and derivatives. The cash is essentially a loan from the issuing bank, whilst the derivatives are used to gain expose to a basket of underlying reference entities. This could be a single or collection of global indices such as the FTSE 100.
The performance of the product is then dictated by the performance of the index or indices. Unlike more traditional asset classes, the outcomes of an investment in a Structured Product are known at outset. Uncertainty being the bane of any investor, here the expectations (favourable or otherwise) are detailed ahead of time and as such they can serve as a useful addition to a portfolio.
They are typically tailored to the risk appetite of the investor. As with traditional asset classes, risk versus reward plays an important part in the returns one can expect to see from a Structured Product.
For example, it is possible to ensure complete protection of the capital invested (a capital protected product), however this will greatly reduce any potential for income.
Alternatively, your capital may not be protected which could expose your capital should the underlying perform adversely. The potential for income however is increased.
The life cycle of a structured product can last anywhere from 3 to 6 years. Some however may include an auto call feature which ensures the investment will end early if the underlying has performed particularly well.
Structured products are designed to be held until either they mature or auto call. It is important to ensure that prior to investing in a structured product that you are able to commit to holding the product for the intended timeframe.