29 May 2014

A Good Time for Structured Products?

Different types of investment perform in different ways. That's what makes diversification so important. I've written about structured products before, and their behaviour can be different to the more common equity-based or fixed interest investments, for example.

Depending on what you think investment markets will do in the near future (the next year or few) now may be a good time to take a look at structured products. If, for example, you believe that markets will not continue going up as they have done now for five years (albeit with a couple of blips on the way), then having the more predictable return of some structured products might be the best thing for you.

One of the most popular types of structured products is the "kickout" or "autocall" product. They provide the advertised return (say 8%) for each year up to the point where you are kicked out - and the kickout occurs because the index that the product follows (such as the FTSE 100) is above a certain level at the anniversary. And because that level can be a "defensive" level below the start point, big returns in markets are not required to give you the product's modest return.

As ever there are risks, and here they include a dependence on the backer of the product - typically a bank - still being there at maturity.

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