The synthetic Strukturierte Produkte is taking an increasing place in the investors’ portfolio, even if the crisis of 2007or2008 gave them a smell of sulfur. Indeed, unlisted on the stock market, structured products were singled out for their role in the financial crisis of that time.
Composition of a structured product
A structured product is most often issued in the form of a structured bond called EMTN, Euro Medium Term Note. This obligation is guaranteed by the issuing bank, which provides daily liquidity. EMTNs are not eligible for the stock savings plan.
Like a wall, structured products are made of different bricks. For a financial product to be qualified as structured, it must be composed of at least two elements, a bond brick and optional brick derivatives. For the bond component, part of the capital is placed in an interest rate product with a more or less long maturity.
For the optional component, the other part of the capital is invested in one or more derivative products, the price of which changes according to the price of an underlying asset the financial asset to which a derivative product relates.
Secondary market
Good to know: derivatives are generally classified according to their underlying, structured rate, exchange, equity, etc. It is this last component that determines the sensitivity of the structured product to changes in the underlying. It determines the future value of the product. This sensitivity is calibrated according to the risk profile that investors are looking for.
This risk or return profile can be limited thanks to the installation of protective barriers determined in advance according to expectations on the evolution of the underlying. There are structured capital guaranteed products which, as their name suggests, offer total or partial capital protection, most often at maturity.
Since the subprime crisis, the regulation of structured products has been considerably strengthened. The Financial Markets Authority regularly monitors the financial situation of companies issuing products on the regulated market.
The Essential
A structured product is a formula financial instrument with two parts: a capital protection part and a performance part. Beyond the risks associated with the investment medium, these are complex products that are difficult to access. The performance of the products is lower than that of the underlying on which they are indexed.
Structured product
A structured product is a complex financial instrument. It is a formula combining capital protection and a search for performance, thus allowing the implementation of a predefined investment strategy. It is a financial instrument issued by a bank or an insurance company, generally composed of two elements:
- The first ensuring partial protection of the invested capital,
- The second allows you to be exposed to a risky asset, most often a stock market index or a stock.
How are these financial instruments made up?
Structured products are formulas of several different financial products. It is complex to put forward a standard combination. However, they are made up of two parts:
Partial capital protection: For example, this can be via the investment of part of the capital in a rate product with a more or less long maturity, a search for performance linked to the development of an asset. For example, this could be a stock or a stock index. Structured products also present risks linked to the investment medium itself.