Structured Products

Bridge of the Americas (known as Thatcher Ferry Bridge) Panama City, Republic of Panama

What are these sophisticated investments?
Structured products are investments that provide investors with the potential opportunity to earn a higher return than those offered by conventional fixed deposits. Most of these products are linked to the performance of an underlying benchmark such as equity markets, commodities or foreign exchange markets. An interesting benefit of many structured products is the protection of some or all capital allocated into it. Usually 100% of the initial capital can be protected; it works allowing investors to link one portion of their portfolio to the performance of global financial markets with small capital risk.

It’s a fact that investors can tailor an investment structure to meet specific objectives where one can take in consideration factors like: risk tolerance, horizon, capital protection, market exposure, options and swaps. Keep in mind that additional features may carry extra risk or charges; therefore, it is important to discuss any addition with your financial advisor.

Added Value when investing in Structured Products
Investing in these products require that each investor understands based composition of the structure because periodic interest payments may be provided to the investor, so one must understand how those are achieve.

A derivative component as a put option or call option may be written in order to provide those interests; explaining these instruments will be part of the financial advisors tasks, but is one step towards learning more about them. At the very end is crucial to highlight benefits that investors should consider when allocating funds into them:

Principal Protection; however, one must considered the derivative component and percentage covered.
Enhanced Returns; therefore, structures are able to increase short-term gains if used correctly.
Reduce Volatility; within an investment reducing the overall risk of a portfolio.

Understanding Structured Products Risks
These investment instruments can be of great benefit for investors, however, you must consider your financial condition because they can be constructed in such a way that your capital is protected up to a certain percentage or not at all. In addition you may consider the following points before adding them to your investment portfolio:

Credit Risk; part of your due diligence is to know exactly who is protecting your capital and review their previous transactions with this offer. Structured products are unsecured debt from investment banks.

Lack of Liquidity; there is not an exchange where they will be actively traded, therefore, rarely trade after issuance and any investor looking to sell them before maturity should expect to sell it at a significant discount.

No Daily Pricing; this is a heavy consideration to any professional investor. These investments are priced on a matrix do not expect calculations based on NAV (net asset value) Matrix pricing just to give you a picture is basically a “guess” approach.

Sophisticated Structures; meaning that investors may consider them derivates because the return is calculated on a formula related to the performance of the underlying asset, therefore, knowing exactly how it will perform versus been invested directly on the asset can be tricky for most financial advisors.