Why structured products are gaining the trust of investors

Defined returns, market protection barriers and known maturity dates are the three top reasons why investors are choosing to invest in structured products, according to a survey by CompareStructuredProducts.com. 

 Why structured products are gaining the trust of investors


Defined returns, market protection barriers and known maturity dates are the three top reasons why investors are choosing to invest in structured products, according to a survey by CompareStructuredProducts.com. 

Defined returns, market protection barriers and known maturity dates are the three top reasons why investors are choosing to invest in structured products, according to a survey by CompareStructuredProducts.com. 

While there are many benefits to investing in a structured product, their significant appeal is in their defined returns. We have all seen how volatile markets can be and this means that the pre-defined outcomes of a structured product have become even more appealing. As an investor, it cannot be emphasised enough how important the power of knowledge is in understanding exactly what you stand to lose or gain when investing in a specific product.

According to a survey of users of CompareStructuredProducts.com, 81.6 per cent of investors recognise defined returns as the most substantial benefit of investing in a structured product. Structured products cover a range of risk and return profiles and knowing what you can get and how you can get it is useful for portfolio planning.

Investing in a structured product or a range of them can be an ideal choice for a cautious investor, because of the capital protection offered by structured deposits and capital ‘protected’ products. Even if a structured product only returns the invested capital at maturity, this outcome is welcome in adverse market conditions.

Market protection barriers are another reason why structured products are at the forefront of the respondents’ minds when choosing how to invest their money, with 62.3 per cent of investors recognising this as an influential factor. The most common barrier at present is 50 per cent, protecting the investor’s capital unless the index falls by more than half either by the end or during the investment period. This kind of protection offers security in all but the most severe market conditions.

As an aside, structured deposits also have the benefit of protection should the deposit taker become insolvent during the investment term. This protection is provided by the FSCS (Financial Services Compensation Scheme) up to the first £85,000 invested per person per banking licence. The rates on offer make them compelling alternatives to deposit accounts.

Known maturity dates are also key for over half of the survey’s respondents. This can be especially useful when tax planning, enabling investors to make the best use of their annual capital gains tax allowance.

Over one third of respondents noted that another compelling benefit to investing in a structured product is how easy it is to understand, setting out what can be achieved in what circumstances and when. When investing in a fund, you are trusting in the fund manager’s skill for returns, while a straightforward FTSE tracker offers no protection from market falls. The value of use of structured products is clear.

Read more: Structured products: a less stressful investment?

Turning to product types, the most popular investment is an auto-call, with 77.8 per cent selecting this type of investment. An auto-call has the potential to mature early if the plan meets pre-set conditions. The criteria selected will be linked to the performance of its underlying asset. The plan will typically automatically mature (or ‘kick- out’) prior to its final maturity opportunity if the underlying measurement is above the initial level on a set anniversary. An early maturity gives investors the benefit of reinvesting their investment proceeds, which can help accumulate returns. Growth products were the second most popular choice of investment, with 41.9 per cent of users choosing these investments, and income products followed closely, with 40.2 per cent of respondents preferring these.

As the reputation of structured products grows, investors are becoming comfortable with expanding their product horizons. But as with any investment, it is important to understand the risks being taken in return for the potential rewards. Comparing a particular product against its peers can, as the name suggests, be done via our website, CompareStructuredProducts.com which publishes the terms of the various new products on offer. 

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