Difference between revisions of "Structured products"

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Structured products are restructured [[notes]] usually issued by [[investment bank]]s that offer exposure to almost any global market sector combined with varying levels of principal protection. Structured products are often built around [[investment-grade bonds]] and are sometimes publicly traded and regulated.
 
Structured products are restructured [[notes]] usually issued by [[investment bank]]s that offer exposure to almost any global market sector combined with varying levels of principal protection. Structured products are often built around [[investment-grade bonds]] and are sometimes publicly traded and regulated.
  
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Structured products allow investors to take a position in the market on almost any investible [[asset]] class while either completely or partially protecting their original [[capital]] depending on their risk appetite. Their capital-protection element usually derives from a [[zero-coupon bond]] purchased at a discount, while the return derives from a derivative, usually [[over the counter]] (OTC), such as a call [[option]], [[swap]] or [[futures]] contract on the underlying [[asset]].<ref>{{cite web|url=http://www.investopedia.com/articles/optioninvestor/07/structured_products.asp|name=Understanding Structured Products|org=Investopedia - Forbes Digital|date=August 19, 2008}}</ref> Producers are represented by the [[Structured Products Association]] (SPA), a New York City-based trade group dedicated to, among other things, promoting "structured products as a distinct asset class."<ref>{{cite web|url=http://www.structuredproducts.org/about/|name=What Is The Structured Products Association?|org=SPA|date=August 19, 2008}}</ref>
 
Structured products allow investors to take a position in the market on almost any investible [[asset]] class while either completely or partially protecting their original [[capital]] depending on their risk appetite. Their capital-protection element usually derives from a [[zero-coupon bond]] purchased at a discount, while the return derives from a derivative, usually [[over the counter]] (OTC), such as a call [[option]], [[swap]] or [[futures]] contract on the underlying [[asset]].<ref>{{cite web|url=http://www.investopedia.com/articles/optioninvestor/07/structured_products.asp|name=Understanding Structured Products|org=Investopedia - Forbes Digital|date=August 19, 2008}}</ref> Producers are represented by the [[Structured Products Association]] (SPA), a New York City-based trade group dedicated to, among other things, promoting "structured products as a distinct asset class."<ref>{{cite web|url=http://www.structuredproducts.org/about/|name=What Is The Structured Products Association?|org=SPA|date=August 19, 2008}}</ref>
  
Structured products (SPs) usually become more popular during periods of market uncertainty when more conservative investors seek some level of 'downside protection' during volatile periods. Those with full protection might offer a note with payout based on the underlying asset's return, increasing to double or triple by forsaking degrees of downside protection, while losses of up to five percent up to maturity are usually protected but the investor bears the cost of steeper falls unless they choose products of longer maturity.<ref>{{cite web|url=http://www.forbes.com/2007/04/06/structured-products-hedging-pf-ii-in_jsm_0406soapbox_inl.html|name=Adviser Soapbox: Synthesized Portfolios With Structured Products|org=Forbes|date=August 19, 2008}}</ref> Most SPs track a single asset class but some, called 'rainbow notes', can combine several distinct assets into a single product.
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Structured products (SPs) usually become more popular during periods of market uncertainty when more conservative investors seek some level of 'downside protection' during volatile periods. Those with full protection might offer a note with payout based on the underlying asset's return, increased by forsaking degrees of capital protection. Losses of up to five percent to maturity are usually protected but the investor bears the cost of steeper falls unless they choose products of longer maturity.<ref>{{cite web|url=http://www.forbes.com/2007/04/06/structured-products-hedging-pf-ii-in_jsm_0406soapbox_inl.html|name=Adviser Soapbox: Synthesized Portfolios With Structured Products|org=Forbes|date=August 19, 2008}}</ref> Most SPs track a single asset class but some, called 'rainbow notes', combine several assets into a single product.
  
Nonetheless, SPs don't appeal to all investors, mainly because they cap returns and so risk underperforming a strongly-growing market. Plus their publicly-traded market is often thin and tends to lack the liquidity sought by many traders, although a recent structured-product innovation from [[Barclays]] Bank called [[exchange-traded notes]] (ETNs) that trade like common stock on an [[exchange]] aim to improve this. Pricing transparency is also a concern since there is no uniform pricing standard and no way to compare pricing attractiveness between structured products.
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Nonetheless, SPs don't appeal to all investors, mainly because they cap returns and so risk underperforming a strongly-growing market. Plus their publicly-traded market is often thin and tends to lack the liquidity sought by many traders, although a recent structured-product innovation from [[Barclays Bank]] called [[exchange-traded notes]] (ETNs) that trade like common stock on an [[exchange]] aim to improve this. [[Price]] transparency is also a concern since there is no uniform pricing standard and no way to compare pricing attractiveness between structured products.
 
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== Latest News ==
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Recent volatility on Indian [[equities]] markets, where stock prices fell forty percent between January and August of 2008, has drawn a growing number of high-net-worth Indian investors into the structured-product market, noted the head of Global Private Client at DSP [[Merrill Lynch]].<ref>{{cite web|url=http://economictimes.indiatimes.com/Opinion/Interviews/Structured_products_have_picked_up/articleshow/msid-3369812,curpg-1.cms|name=‘Structured products have picked up’|org=Economic Times (India)|date=August 19, 2008}}</ref> Their growing popularity in India, said Pradeep Dokania, is due to their combination of customizable levels capital protection and indirect exposure to an asset class the investor views favorably without buying in directly. 
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== References ==
 
== References ==
 
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[[Category:Structured Products]]
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[[Category:Bonds]]

Latest revision as of 17:17, 1 February 2018

Structured products are restructured notes usually issued by investment banks that offer exposure to almost any global market sector combined with varying levels of principal protection. Structured products are often built around investment-grade bonds and are sometimes publicly traded and regulated.

Mixed and matched

Structured products allow investors to take a position in the market on almost any investible asset class while either completely or partially protecting their original capital depending on their risk appetite. Their capital-protection element usually derives from a zero-coupon bond purchased at a discount, while the return derives from a derivative, usually over the counter (OTC), such as a call option, swap or futures contract on the underlying asset.[1] Producers are represented by the Structured Products Association (SPA), a New York City-based trade group dedicated to, among other things, promoting "structured products as a distinct asset class."[2]

Structured products (SPs) usually become more popular during periods of market uncertainty when more conservative investors seek some level of 'downside protection' during volatile periods. Those with full protection might offer a note with payout based on the underlying asset's return, increased by forsaking degrees of capital protection. Losses of up to five percent to maturity are usually protected but the investor bears the cost of steeper falls unless they choose products of longer maturity.[3] Most SPs track a single asset class but some, called 'rainbow notes', combine several assets into a single product.

Nonetheless, SPs don't appeal to all investors, mainly because they cap returns and so risk underperforming a strongly-growing market. Plus their publicly-traded market is often thin and tends to lack the liquidity sought by many traders, although a recent structured-product innovation from Barclays Bank called exchange-traded notes (ETNs) that trade like common stock on an exchange aim to improve this. Price transparency is also a concern since there is no uniform pricing standard and no way to compare pricing attractiveness between structured products.

References

  1. Understanding Structured Products. Investopedia - Forbes Digital.
  2. What Is The Structured Products Association?. SPA.
  3. Adviser Soapbox: Synthesized Portfolios With Structured Products. Forbes.