Structured products are customized to meet specific needs that cannot be met from the standard products available in the markets and a large number of them are derivative products. They are highly multifaceted and interlinked and hence carry higher levels of risks
An insight into the current trends in Structured Products reveals the following interesting developments
Markets
- Tighter credit conditions
- Elevated volatility
- Both resulting in increased cost
- Credit rating of the issue and issuer
- Number of innovations are taking place
- Lower volatility underlying assets are becoming popular
- Market neutral / long / short / volatility capped / algorithmic strategies are becoming the order of the market
Products
- Product development and competitive environment
- Regulatory and fiscal changes impact the market
- Emerging opportunities in ETF investments
- Emerging trends in wrappers and underlyings
- Investors continuing to consider alternative investments in their portfolio
Preferences
- Capital protected products remain the most popular choice
- Focus on primary needs of flexibility, income and protected leverage
- Optimization of risk management
- Cross asset approach on structured products, research activities
- Preference for enhanced transparency, liquidity and reporting
What the investors are looking for
- simplicity and clarity on top of security
- payoff simplicity and transparency
- compliance with regulations in terms of credit and counterparty risks
- Thematic ideas (emerging markets, volatility)