Key features of Structured Products

Structured products, despite their complexity, can be understood through three basic features. The performance of a structured product hinges on its underlying assets, which are typically equities or indices. Investors looking to secure their pension funds might choose country indices like Nikkei, S&P, Dow Jones, or Euro Stoxx. These indices are considered ultra-safe due to their lower volatility and lesser likelihood of prolonged downturns.

Investors have a wide range of underlying assets to choose from. A technology enthusiast might opt for a structured product comprising equities from Facebook, Apple, Netflix, and Sony, forming a tech-centric basket we’ll call the FANS basket. The performance of a structured product is often linked to its weakest underlying asset. For instance, if Facebook underperforms at 80% of the buy-in price within the FANS basket, the structured product’s performance will also be at 80%.

The coupon trigger is another crucial feature, determining if coupons (similar to dividends) are paid out. As long as the worst-performing underlying asset remains above the coupon trigger, payments are made. For example, with a 70% coupon trigger, the underlying assets can drop to 70% of their buy-in price, and the coupons will still be paid. Considering the FANS basket, if Facebook stands at 80%, Apple at 92%, Netflix at 84%, and Sony at 97%, coupons will be paid out since Facebook, the lowest performer, is above the 70% threshold. Even if all underlying assets dip below their buy-in price, the investor still receives the coupon, ensuring a profit.

The protection barrier operates similarly to the coupon trigger but focuses on safeguarding the investor’s capital. At maturity, if the worst-performing underlying asset is above the protection barrier, the full capital is returned. This feature enhances the appeal of structured products, especially in volatile markets. For example, with a 60% protection barrier, underlying assets can fall to 60% of the buy-in price, and the investor’s full capital will still be returned at maturity. In contrast, a traditional investment might result in a 40% loss.

These three features—underlying assets, coupon trigger, and protection barrier—constitute the core elements of most structured products. Additional features can be included to tailor the product to meet specific investor profiles and preferences.

TEAM plc (LON:TEAM) is building a new wealth, asset management and complementary financial services group. With a focus on the UK, Crown Dependencies and International Finance Centres, the strategy is to build local businesses of scale around TEAM’s core skill of providing investment management services.

Click to view all articles for the EPIC:
Or click to view the full company profile:
Facebook
X
LinkedIn
Team plc

More articles like this

Team plc

US technology stocks lead the way

Halfway through the year, markets have been significantly influenced by US technology stocks. The Nasdaq 100 index climbed 17%, primarily due to its major constituents being linked to artificial intelligence and semiconductors. These sectors are benefiting

Team plc

Wall Street strategists finally warm up to S&P gains

This year’s rally in risk assets is breaking the resolve of Wall Street strategists, who have remained steadfastly bearish on the prospects for S&P gains in 2024 until now. So far in June, strategists have lifted

Team plc

Inflation in America: Main Street vs Wall Street

Recent US inflation data has once again sparked excitement on Wall Street, prompting hyper-sensitive markets to reassess the likely path for interest rates over the remainder of 2024 and 2025. Many believe that the battle against

Team plc

Global financial markets see continued momentum

Global financial markets are experiencing sustained momentum, with major US equity indices such as the S&P 500 and the Nasdaq reaching new all-time highs. However, leadership in these indices remains highly concentrated. The equal-weighted S&P 500,

Team plc

Financial markets continue to surge

Momentum trading across global financial markets remains robust, with major US equity indices such as the S&P 500 and the Nasdaq reaching new all-time highs again this week. This surge is notably concentrated, as shown by

Team plc

Sustainable investing in today’s world

Sustainable investing has experienced significant growth in recent years as investors increasingly recognise the importance of addressing global challenges. With more information available about the performance of sustainable investments, often outperforming traditional ones, interest has surged.

Team plc

Mastering sustainable investing and ESG principles

Sustainable investing has grown significantly in recent years due to increasing concern about global challenges and the performance of sustainable investments. Environmental, social, and corporate governance (ESG) issues, evidenced by daily news and personal experiences, have

Team plc

The benefits of a professional financial consultation

Imagine having a financial advisor who truly understands your unique financial situation, goals, and concerns. That’s exactly what you get with a professional consultation. Contrary to popular belief, most financial advisors offer these initial consultations without

Team plc

Key Insurance Types in Financial Planning

When it comes to financial planning, different types of insurance serve different purposes. While critical illness insurance can be valuable, the importance of each insurance type may vary depending on a clients individual circumstances and priorities.

Team plc

Benefits of saving money early in life

Saving money earlier in life can have several advantages. Here are a few reasons why it is beneficial to start saving at a younger age: TEAM plc (LON:TEAM) is building a new wealth, asset management and complementary