Optimal flexibility thanks to structured products

Structured products are alternatives to direct financial investments, such as shares or bonds. Their flexibility comes from the fact that they combine a traditional financial product as an underlying  The underlying (also known as base value) is the value (e.g. a security, a currency, an index or raw material) on which a derivative (such as an option, a future or a warrant) or a structured product is based. (e.g. shares  A share is a security which gives investors a stake in a company. Companies raise capital by issuing shares. Shareholders have proprietary rights (e.g. entitlement to dividends) and membership rights (e.g. entitlement to take part in the general meeting and the right to vote). or bonds  A bond is a security that generates interest for investors. In addition to entitlement to payment of the agreed interest, bond holders – the creditors – also have the right to repayment of their capital. A government bond is issued by a state. The state, the Swiss Confederation for example, is the issuer of the bond and therefore also the debtor.) with a derivative  A derivative is a financial instrument whose price is determined by an underlying (e.g. shares, bonds, commodities, precious metals or currencies). With share options, for example, the share is the underlying. Price performance depends on the underlyings (also known as base values). Derivatives are generally more volatile than other financial instruments.. New individual investment solutions are emerging to meet a wide range of market environments and scenarios, including challenging ones. Over 30,000 different structured products are listed in Switzerland, and new ones are being added all the time. Switzerland is also the largest market in the world for structured products in terms of investment volume.

The widespread view that structured products are high-risk is not true generally. The fact is that the structured products market is so big that it is difficult to keep track of it and to find the products which are in line with your own risk profile. The risk classes used by the The link will open in a new window Swiss Structured Products Association (SSPA) may help with this: the structured products are divided into six different risk classes, from low (comparable with money market investments) to very high (comparable with options  An option contract is a conditional forward contract. In exchange for payment of an option premium, the purchaser gains the right to purchase (call option) or sell (put option) a specific security for a specific price at a later date. However, the purchaser is not obliged to exercise this option.). The risk is indicated by a number between 1 and 6, based on the value at risk (VaR)  The value at risk (VaR) provides information on the highest possible loss of a risk option (for example, portfolio of securities) which will not be exceeded with a given probability during a specific period of time. For example, the investor XY assumes that a daily loss of CHF 1,000 will not be exceeded with a probability of 95%. The VaR does not indicate how much higher the loss could be in the remaining 5%..

• 1 = Low
• 2 = Moderate
• 3 = Medium
• 4 = Increased
• 5 = High
• 6 = Very high

Transparent risk assessment makes it easier for investors to manage their risk in a targeted way. Leverage products, for example, generally entail greater risk and are therefore more suited to speculative investors, whereas the risk of capital protection products is similar to that of bonds.

Structured products facilitate access to new markets and transparency

Structured products also provide easier access to asset classes, such as commodities and real estate or emerging regions into which only institutional investors would otherwise be able to put money. They also allow even small amounts of money to be invested in these asset classes.

Another benefit is transparency. For every market performance variant covered by the structured product, the amount paid out at the end of the term is determined when it is purchased. Success is therefore determined by market fluctuations and the creditworthiness of the issuer  Issuers issue securities, such as shares or bonds. They can be either states or companies seeking to raise capital., rather than a manager’s expertise. On the other hand, depending on the product category, the additional costs (fees) tend to be high and sometimes lack transparency compared to other financial products. Depending on the product, the additional costs can nevertheless be lower than the fees for an actively managed fund, for example.

Pay attention to the creditworthiness of the structured product issuer

From a legal point of view, structured products are obligations to be met by the product issuers. They bear liability with their full assets. This means the quality of a structured product is heavily dependent on the creditworthiness of the issuer. In contrast to funds, structured products are not classified as segregated assets which are legally separated from the issuer’s assets.

Structured products to diversity your portfolio

Look at structured products as a way of supplementing your portfolio. They present an opportunity to spread the risks of your investment more widely or to focus on specific areas in your portfolio. Investing solely in structured products is not advisable due to the risk involved. Find out in depth about the quality of the issuer and seek advice if you are inexperienced in investing in structured products.

Tracker certificates – a popular instrument

Tracker certificates are participation products, which fall under the category of structured products, and are probably the most common and well-known product group in this product category. PostFinance tracker certificates give investors access to selected investment strategies, as well as various markets, trends and areas of investment.