The case for structured products

The first thing to say about structured products is that we should probably call them something else. All products and investments are structured in some sense.

“Structured products” as commonly known can be thought of in terms of the benefit they are usually designed to achieve some form of protected investment experience. In general, this means an involvement in equities or equity-driven performance but with greater predictability or a narrower (or fixed) range of possible outcomes - often including protection for the investor’s initial capital.

Essentially, then, we mean some kind of equity-based upside potential with levels of capital security for the investor. A middle way between cash and unprotected equities. Put like that you might imagine these products to demand a dominant place in the portfolios of “Middle Britain” – yet the reality is very different.

The market for protected investments

An enormous amount of money – around £571bn – currently sits in cash deposits (source: British Bankers Association March 2009). UK equity funds, although considerably less popular than cash, still have around £204.8bn invested (source: IMA April 2009). How does the structured product market compare? As of May 2009, the amount of money invested in ‘live’ structured products stood at just £35.6bn (source: stucturedretailproducts.com).

The question is: why? How much does anyone need in accessible cash deposits? Are most consumers’ needs really met by the typical capital-at-full-risk product otherwise known as the equity ISA or OEIC/unit trust? We believe there is a case for a radical reassessment of the role of protection or risk management in retail portfolios. Protected investment solutions are much more commonly adopted elsewhere in the world, but in the UK the “equity cult” has been virtually omnipotent. It is, in some ways, an inexplicable phenomenon.

Protected investments offer more than simple long-only guesses – they take some of the thinking in the most sophisticated wealth management circles and convert those techniques into accessible solutions for the retail investor.