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What is a structured investment product?

23 Jun 2022

A structured investment product is designed to take advantage of market conditions through pre-packaged investments that are usually linked to an index or a basket of underlying securities.

Clients who invest in these products are agreeing to a fixed term structure that should be held to maturity in almost all cases.

Structured products can bring many derivative benefits to investors who otherwise would not have access to them

These products are designed to facilitate very specific risk-return objectives, such as the below:

  • Capital guarantees
  • Leveraged upside participation
  • Knock in performance booster for markets that are flat or up
  • Yield Enhancement

Risks

These products are issued by large banks both in South Africa and the US and the products are listed on the stock exchange. The credit risk for the client is to the balance sheet of the bank or institution issuing the product, not the advisor.

Returns

Issuers normally pay returns on structured products once maturity is reached. In some cases the holders of the structured products may decide to roll the structure forward or unwind early. In the case of unwinding the product early, there will usually be a small breakage fee to the institution.

Structure

These products are structured by the purchase of a deposit or zero-coupon bond at a bank with a maturity value equal to that of the capital guarantee or face value of the product. The balance of the investment is used to purchase an option over the underlying security that will create the return profile.

Structured Products

How does Bayswater Capital use Structured Products?

Bayswater Capital and its clients have used these products in the past to take advantage of specific market opportunities.

In conjunction with one of South Africa’s largest bank structuring desk, we have recently put on a trade that takes advantage of the following:

  • Reference the FTSE 100 Index
  • Take advantage of rotation from growth into value
  • Capture outflows from US equities and inflows into EUR equities
  • Capital Guarantee
  • 1.7 times leverage to the upside

Bayswater has also structured bespoke solutions for clients with specific views, such as Electric Vehicles, European Energy Crises and others.