Structured Investment Products
Commonly used by Private Banks to personalise investment portfolios, structured investment products are a contracts between an investment bank and an investor. They can be simple or complicated, low risk or high risk, short term or long term.
Typically, we use them for two main purposes. Firstly, in the case of bespoke investment creation, they are an excellent and low cost way of gaining exposure to the specific exposure requested by a client. Do you think gold, oil, and US government bonds will all rise? We can create a contract for that. Think that tech stocks are overpriced and will fall, and want to profit if they do? We can get that done too. Think that the S&P 500 will stay at roughly the same level this year and want to make a 10% return either way? Done. The possibilities are literally endless, so if you know what you want, contact us and we'll get it done for you.
Secondly, we use them as a way of diversifying an investment portfolio so that profits are still made in flat, or falling markets. There are many potential variables which can be included in any given contract, but typically the ones we include in our portfolios are those which contain some or all of the following:
* Capital Guarantee
* Guaranteed fixed coupon
* Autocallable in certain market conditions
* Fully currency hedged
If you'd like to see some recent examples of structured investments which we have provided to our clients, please contact us and we'll show you and explain them to you. Some of the contractual elements we've included within the last few months are:
* Early redemption after 9 months if the underlying securities have risen - plus full payment of the agreed interest coupon
* 50% return over 3 years, based on US blue-chip companies
* Full capital guarantee, regardless of the performance of the underlying securities
* Quarterly income of 3% per quater (12% per year)
* Full upside annual performance of a BlackRock mutual fund, and at the same time, full capital protection if the fund falls in value
* 22% per year guaranteed income, even if markets are flat
* 100% gearing - double the upside performance of underlying equities
Every investment carries risk, and the main risk with structured investment products is the credit risk of the issuing bank. If the issuing bank goes bankrupt and is not bailed out by a government or government agency, your capital could be at risk.
As with any other area of finance, it is hugely important to diversify. So even if one bank offers a great contract option which is better than all the others, we still strongly recommend diversifying your portfolio across several issuing banks, as well as many different underlying securities.
Whilst personal circumstances and objectives are the most relevant consideration for any investment choices, it's easy to build an investment portfolio of many different structured investments, thereby retaining some regular liquidity and negating major credit risk. Most of our clients who follow this model will gradually build a portfolio of ten or more structured investments over a few months, rather than investing all their capital in one go. We strongly suggest you do the same!
Almost all structured investment prodicts will be issued with their own ISIN number and in some cases a bloomberg ticker symbol - which makes them easy to track and easy to trade. Because each product is a clearly defined contract with a large international bank, with fully liquid listed securities as the underlying assets, it is quick and easy to sell your holding at any point. However, the value of a contract may be highly volatile or stay very flat (depending on the contractual elements), as the returns will be linked to specific times or trigger points. It's generally advisable to make sure you can hold the contract for it's full length of time if needed - but of course we will be constantly monitoring it and will suggest if a more profitable exit opportunity comes sooner.
How to invest
Some investment banks will allow direct purchase from them for large amounts, however many will only deal with an internationally recognised counterparty which satisfies all the relevant regulatory requirements. The mininum investment amount is generally around $10,000 although some can be as low as $1,000. Most of our clients therefore have an investment account established in their name, from which they can easily invest (and trade). The two most popular types of account are below - click each link for more information:
The Imperium Investment Platform
Exclusive Investment Bond / Portfolio Bond from a global insurance company
If you would like to look at including structured products as part of your investment portfolio, you will probably benefit from a Financial HealthCheck with one of our qualified advisors. Alternatively, if you would just like to discuss the specifics of structured investment products, that's fine too - please just contact us.
For more information in a portable data file format, please click here.