Structured investment maturity analysisJanuary 18, 2017 - 17:07
We have recently
completed a study of the returns offered by structured products, and compared
this with the price return of the underlying assets. This study shows that the
annualised return from 85% of the products in our sample was higher than the
annualised return from the underlying index.
Our study includes
every structured product that we have in our system that has matured. We
calculated the annualised return of each product and compared this with the
annual return of the underlying price return index. For each product, the
investment starts at the strike of the structured product and ends at the
maturity date. The underlying asset performance is the price return and so
excludes dividends. Where a product is linked to the performance of multiple
underlying assets we compared the performance to the average return of the underlying
assets, and to the performance of the best performing of the underlying assets.
The results of this
study are compelling:
- 85% of
matured products in our sample offered a higher return than the average return
from the underlying asset over the same term
- The average
investment period was 2.2 years
- The average
annual return from the structured products was 8.5%
average, average return of the underlying assets was 4.5% per annum. The
average of the maximum return of the underlying assets was 6.2%
- The out-performance of the structured
products is particularly marked when the average underlying return is less than
The table below illustrates the results of the study:
against the price return index is perhaps flattering for structured products
because it excludes the dividend return from the underlying. We are in the
process of conducting a further study to compare the returns from structured
products with the returns from ETF’s that track the underlying market. In
advance of this study we can see that by shifting the annualised return from
the underlying up to reflect dividends we estimate that the average returns may
be just about equivalent. However even this is still not a fair like for like
comparison. Most of the structured products in our sample are retail “Plans” so
the payoff typically include the costs of holding the product. For an ETF the
equivalent would be the annual charge for a wrap or brokerage account, these
will be between 25bps and 50bps per annum. Investors typically must pay a
brokerage fee to buy an ETF. Additionally, about 10% of the structured products
were issued before 2013 and so the product would include a IFA commission. ETF’s
will incur costs and charges, and so will offer a lower return than the index.
conclusions from this study are that the return profile from structured
products compares very favorably with the return from the underlying asset.
- The average
returns are in-line or better than the returns from the underlying assets
products offer demonstrably better returns when the returns from the underlying
asset are below average.
- The spread
of returns from structured products is much lower than the spread of returns
from the underlying.
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.