Do structured products offer the returns that investors really want?September 28, 2016 - 10:42
Most investors want a decent chance of a good return with an element of protection. Our analysis of the current crop of retail structured products show that there has been about a 66% chance of annual returns between 5% and 10%, and less than a 1% chance of loss. This looks like an attractive profile for most investors, and is one that is currently very difficult to achieve through a conventional portfolio of equities and bonds.
Investing in a number of individual structured products would be attractive but is difficult and time consuming. Our Managed Portfolios offer investors the chance to access a diversified portfolio of structured products through a single DFM model portfolio.
Our stress test shows that, most of the time one could have expected the annual return from structured products to be between 5% and 10%. There is a good chance that the annual return will be between 0% and 5% and also a chance that returns will be more than 10%. The striking feature of our analysis is that across all of the retail products available now shows there would have been less than a 1% chance of a loss and a 99% chance of a gain. This compares with a 6% chance of a loss from holding a FTSE tracker fund over a six year period.
The return profile of an equity investment is very different. To make an apples and apples comparison we look at the returns from a FTSE tracker over six years. A FTSE tracker offers the prospect of a high return but is much less likely to offer a return in the critical 5% to 10% range that many investors will be hoping for. There is also a much higher chance of a loss from a tracker.
The chart and table below summarise the results of our analysis and compare the returns from structured products with the returns from a FTSE tracker:
Overall the risk of all of the products available now is similar to a portfolio that has about a 45% exposure to equities, but the return profile is very different. Structured products will suit investors that are prepared to give up the chance of a high return for a better chance of a good return and a degree of protection. We think that this is a return profile that will suit many investors.
PRODUCT SELECTION/MANAGED PORTFOLIOS
The already attractive return profile from structured products can be improved through selecting the products with the best risk/return profile. Every week we publish our analysis of the current products and highlight the three "best" products on the front of our site.
products are attractive, but for investors that want diversification across
multiple products it may not be practical or feasible to buy a broad selection
of individual retail products and to maintain this portfolio over time.
Our new Managed Portfolios offer an effective and efficient solution
is single simple application form to buy the portfolio.
are recommending a discretionary management service. The investment manager is
responsible for selecting all of the individual investments.
portfolios are open-ended, there is no start date or maturity date. Investors
can buy and sell when they want.
portfolios can be held directly, they can be held in an ISA and a pension
30% exposure limit to any one issuer within the portfolios means that investors
that allocate up to 25% of their investment to the managed portfolio will
comply with the FCA 25% / 10% exposure guidelines.
portfolio offers exposure to a diversified selection of structured products.
portfolios have a clear mandate and are managed with a volatility target so it
is easy to identify which portfolio will be suitable and appropriate
products included in the portfolio have been issued for institutional investors
and so are only available to discretionary managers.
institutional products have no fees and so offer better terms.
INVESTING IN THE MANAGED PORTFOLIOS
in the managed portfolios is simple and easy. The portfolios are available from
James Brearley and Sons
- MPS Brochure
- Application form
- Balanced Growth Portfolio Description
- Cautious Income Portfolio Description
- Cautious Return Portfolio Description
For detailed information on the individual notes
held in each portfolio advisers can access the “dummy” portfolios on the James
Brearley site. This has current pricing if each note and a link to the CUBE
site where we publish comprehensive analysis of each product.
Enter the following username/password
from the options on the left
Select: the Portfolio option for each portfolio
David has been involved in equity derivatives, equity structuring and the structured product market for over 25 years. Before setting up CUBE in 2013 David worked at J.P. Morgan, Barclays and RBS. David has worked with and for retail product providers, discretionary managers and institutional investors.