Structured products have long divided opinion: while some view them as potentially risky and complex, others recognise them as important tools for investors seeking capital protection and more predictable returns. With benefits such as hedging downside risk, as well as help with cashflow and tax planning, structured products can offer attractive returns to investors, particularly in difficult market conditions. Blending these products into a larger portfolio can diversify risk and improve the potential upside outcomes.
When the outlook for equity markets is uncertain many investors are discouraged from entry. At such times structured products may present an appealing alternative. During a bear market or recession, reliable returns or income streams are very much top of mind for any investor, where investing in traditional asset classes looks questionable. Equities and property are susceptible to market risk. And returns on bonds may be eroded in a low interest rate environment where inflation is on the rise, which rules out cash too.
Structured products tend to be overlooked, and while they have their pros and cons, at a time when stock and bond markets look unattractive, structured products are an option we strongly believe are worth considering. Given the current concern about the economic outlook, VitalityInvest has launched two Protector Funds – both invested in structured deposits – for clients with medium-low risk appetite. The funds aim to meet clients’ need for capital protection, while promoting investment growth.
Recent research* by advisers Lowes Financial Management, which assessed almost 400 structured products with 2018 maturity, showed that despite the shaky financial markets across the globe, no product distributed by UK intermediaries that matured that year produced a loss.
Ian Lowes, Managing Director of Lowes Financial Management, has been researching structured investments and structured deposits for almost twenty years. He said: “The sector has improved significantly over the last fifteen years or so, to the extent that it now offers a very credible compliment to more traditional, mainstream investments. Our Annual Maturity Review shows that last year, the retail sector saw over 380 maturities where all but 23 matured positively and none gave rise to a loss to the original capital.”
The financial services sector operates under much stricter scrutiny today in comparison to the last global financial crisis. Financial institutions that issue structured products are better prepared and better capitalised and have robust governance procedures in place. In the current conditions, now seems to be the right time to revisit structured products. As with any other financial product, a thorough and fair assessment and recognition of risks and rewards remains instrumental to the selection process.
The high market volatility as a result of global economic uncertainties - the trade wars between the largest economies, the slowing economic growth and many other concerns - creates a stronger case for structured products. They allow advisers to deliver returns in excess of cash for low-risk clients. The investment path ahead is likely to be a bumpy one and assessing options such as structured products to help diversify portfolios via a wider range of investment opportunities would appear to be an important priority as we navigate 2019.
To find out more about VitalityInvest’s new protector fund visit adviser.vitality.co.uk/protector
*Lowes Financial Management, Structured Products annual performance review 2018
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VitalityInvest is a trading name of Vitality Corporate Services Limited. Vitality Corporate Services Limited is authorised and regulated by the Financial Conduct Authority.