COMPELLING EVIDENCE OF THE MERITS AND POTENTIAL BENEFITS OF INCLUDING STRUCTURED PRODUCTS IN PORTFOLIOS
Despite some criticisms, in some quarters, in the past, the statistics about structured product performance that have been emerging in recent years, including comparisons to mutual fund performance, are compelling evidence of the merits and potential benefits of including structured products in portfolios.
We have highlighted some of this before but we think it is so persuasive, and still not recognised by enough advisers, investors and commentators, that we really think it is worth bringing to investors’ attention again.
For example, 381 structured products marketed through professional advisers matured
in 2018. 358 (c.94%) of the maturing products generated positive returns, with an average return of 9.25% for the top quartile of products: and not a single maturing structured product created a loss for investors.
Over the last 3 years, between January 2016 and December 2018, 927 structured products marketed through professional advisers matured. The average return of the capital-at-risk products was 7.45% p.a.: and not a single maturing product lost a single penny for a single investor.
The evidence of the virtues and merits of structured products and the potential benefits
of including them in diversified and balanced portfolios, especially in a challenging market environment, is clear … and should be highly compelling for investors.
In fact, we would suggest that it is hard to identify investment funds or products that may be better suited to the current and potential investment environment than ‘best of breed’ structured products: as they can offer strategies which do not need the market to rise in order to generate positive returns, with protection on the downside if it falls.
AS GRANDMA USED TO SAY, ‘DON’T PUT ALL YOUR EGGS IN ONE BASKET’ …
Generally, our bedrock advice to clients is that portfolio diversification is key, or as grandma used to say, ‘Don’t put all of your eggs in one basket’.
This has always been sound advice for investors to remember.
What we mean by this, is that in addition to diversifying portfolios across different markets / geographical regions (such as the UK, Europe, the US, Asia, etc.), and different asset classes (such as equities, bonds, property, etc.), we also think that investors should consider diversifying across different types of investment, in other words use ‘best of breed’ mutual funds, both actively managed and passive, along with ‘best of breed’ structured products (including structured deposits), to achieve better diversified and more balanced portfolios.
The fact is that there are simply some things that investors cannot do using only actively managed or passive mutual funds, which structured products can be designed to do – including their ability to generate positive returns without requiring the stock market to rise. In fact, many of the structured products seen today are designed so that they can generate positive returns even in flat or even falling stock markets.
We think now is a particularly good time for investors to be including structured products in their portfolios.
PAST PERFORMANCE IS NOT A GUIDE TO FUTURE PERFORMANCE
As always, and especially as we have drawn your attention to past performance statistics, we must make the important statement: past performance is not a guide to future performance and should not be relied on, especially in isolation. The value of all investments, including structured products and mutual funds, can fall as well as rise.
DON’T FORGET THE RISKS
As with all forms of investment there are risks involved with structured products.
Whether or not structured products generate the potential returns for investors usually depends on the closing level of the relevant index that the plan is linked to, on the relevant dates for the plan, i.e. the kick-out and end dates, etc. If the relevant index for the plan closes below the level needed, for the plan or plan options chosen, on all of the relevant dates, the plan or plan options will not generate a return.
And the repayment of money invested at maturity may also depend on the closing level of the relevant index on the end date, with the potential for loss of capital if the index closes below the percentage of the start level that nay protection barrier is set at. For example, if the barrier is set at 60% of the start level, and index has fallen by 45%, the repayment of money invested will be reduced by 45% (meaning that investors will get 55% of their investment back).
And both the potential returns and repaying the money invested depend on the financial stability of the Issuer and Counterparty Bank. If the Issuer and Counterparty Bank become insolvent, or similar, or fail to be able to meet their obligations, it is likely that investors will receive back less than they invested.
We are very careful to explain the risks just as clearly as the benefits of structured products – and we provide extensive information to help investors understand these risks in detail.
Please ensure that you read the plan documents for full details of the features and risks.
CLICK THE LINK BELOW to access the general information that we provide regarding the risks of structured products:
TO FIND OUT MORE ..…
If you would like to find out more about the Tempo plans and discuss whether an investment may be suitable for your personal circumstances, please contact us.
Best Price FS Team
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