To attract customers, banks come up with many marketing moves. One of them is investing in structured products. They are positioned as a panacea in the financial market. Are these tools really profitable or is this another financial pyramid?
Essence
Structured products are tools that should protect the initial investment, and make a profit from the growth of assets. The uniqueness of the product lies in the combination of tools that allow you to limit the risk of investments.
In conditions of financial instability, investing in currency is dangerous due to a sharp change in the exchange rate, and it is difficult to invest in the stock market due to high volatility. The situation is further complicated by the fact that it is necessary not only to preserve, but also to increase capital. A solution to the problem may be an investment in structural products that combine a high degree of asset protection and the possibility of making more profit than with a deposit.
The structural products market includes:
- deposits
- securities ;
- Forex trading;
- banking metals;
- options and futures;
- Mutual funds;
- real estate investment, etc.
A structural product is formed by combining assets with different levels of risk:
- deposits and stocks;
- Central Bank of highly reliable and new companies;
- bonds and options;
- deposits and endowment insurance, etc.
The ratio is selected so that the income from “reliable” assets covers possible losses.
Example
The structural product consists of 90% of the contribution with a yield of 10% per annum and 10% of the shares of new companies with a yield of 300%. After purchasing a product, there are three possible scenarios.
If the stocks burn out, interest on the deposit will offset the initial investment. In a year, the client will receive the exact same amount as he invested, without profit, but also without loss. If investments in the Central Bank bring the projected 300%, then the total portfolio return will be 40%. If the investments bring 2/3 of the planned profit, then the profitability of the product will be 30%, etc. That is, the selected shares play a key role, and without risk investments, they serve as insurance against losses.
Subjects
Structural products in the financial market are offered by banks, dealing centers and AMCs. The most reliable products are banks. In AMC, you can pick up assets for "every taste": from conservative to more risky. Portfolio investments of dealing centers are formed at the expense of risky and over-risky assets (for example, currency and option).
The purchase of an asset is accompanied by the signing of an agreement between the investor and the company. It clearly stipulated the amount, term of investments, list of assets, risk level and other issues associated with the transfer of funds.
Scheme of work
Desiring to preserve and increase temporarily available funds, individuals apply to a bank or investment company and acquire a structural product. The intermediary invests part of the invested funds in reliable financial instruments (bills, bonds, deposits), and the second - in an asset tied to the underlying one (stocks, currency), but less volatile (Sberbank shares, gold exchange rate, RTS index, etc.) . The client himself chooses the underlying asset and the level of risk, that is, the proportion of investments that will be redirected to the stock market. The client also independently regulates the participation coefficient (KU), that is, it determines how much of the future income it will receive.
The investment period is from several months to two years. Additionally, you can insure your investments or purchase an investment portfolio with coupon income. In the second case, the client will receive a monthly fixed amount of profit, which does not depend on the change in the price of the underlying asset.
Types of Structural Products
All package offers are divided into two groups:
- Risk-free products guarantee a 100% return on capital. The biggest risk is that by the time the investment is returned, the investor can only receive initial investments that are subject to a small degree of depreciation due to inflation. The client pays only for the opportunity to make a profit if all the assets work.
- Products with limited risk. The share of assets is distributed so as to cover a possible loss. An investor may lose only part of the capital. In a good market situation, the level of earnings can reach 50% of the initial investment.
Benefits
- Structural products of Sberbank or any other credit institution is a passive investment. The client does not independently form an asset portfolio. The financial intermediary performs this work for him.
- There is no need for knowledge and experience with financial instruments.
- It is possible to adjust the level of loss on investments and invest in assets that are not available in their pure form.
- The structural properties of the product are such that the purchase of at least one of them means diversification of investments.
- With good market dynamics, the investor makes big profits with small risks.
disadvantages
- Structural financial products are positioned on the market as something complex. In fact, this is a paid consultation on the issue of placing funds in different assets.
- Even banks cannot provide a 100% money back guarantee. All deposits are insured by the DIA. The probability of loss always exists. The only question is the level of risk. This marketing slogan is designed for advertising only.
- Structural products of banks for which no profit has been made are unprofitable. This means that interest on deposits was directed to cover losses from other types of investment. If the client immediately put the full amount of funds on a bank deposit, he would have received more profit than from a unique product.
- Wealthy clients are structured products. User reviews confirm this. Enter the financial market with an amount of 10 thousand rubles. it makes no sense.
- Asset management services are paid. Commission is charged regardless of whether the investment will bring income or not.
- Combined products are not covered by the state guarantee. If the bank or AMC goes bankrupt, the investor will not be able to return their investments.
- In the Russian market, there is practically no choice of unique products.
- The investor does not become the real owner of the assets, so he can not control investments.
Hidden risks
Structural products are combinations of assets and derivatives. They are collected and sold by world banks in the form of notes (bonds). They insure themselves by releasing opposing structural products positions. The bank always receives a commission. Each individual client, though earning, is on other clients who have bought a riskier asset. Ultimately, all customers lose money. Therefore, to increase the attractiveness of new products, their risks are “encrypted”. What are the banks silent about?
Barrier notes
If all selected stocks keep the price above the set limit, holders of combined products will receive their investments and agreed income back. Notes start to work like bonds. If one of the selected assets decreases in price, the value of the portfolio investment will be equated to the worst of the shares. The probability of price reduction of at least 1 out of 3 shares is higher than each individually. Accordingly, the potential loss significantly exceeds the possible income.
Autocall
Portfolio investments often sell with an additional option. What is the essence of an autocall? If all shares rise in value, the client will be able to purchase another note, and the banker will be able to receive additional income. When the market grows, once a quarter the banker receives a premium, the client receives a new coupon. This happens until one of the Central Banks falls to the established limit.
Another example is a credit note. The client will receive 100% of the increase in the price of a share, and in case of its reduction, a return of 100% of the invested amount. It’s good if you use a not very volatile instrument as an asset. It turns out that part of the note, designed to protect capital, is invested in the stock index. Profitability - 20%.
Distribution network
The problem is not only about risks. Banks cannot immediately cover the entire market. Intermediaries come into play. Each link in the “bank - distributor - manager" chain earns from resale. The structure of unique products is such that the bank can at any time recount the conditions for investing money. It all depends on the seller. Someone will sell a coupon with a mandatory investment of 99.5% of the money, having received only 0.5%, while someone will be able to sell the goods with worse conditions and get 5% right away. The maximum difference may be 35%.
Resellers often sell more risky products. As a result, conservative portfolios are filled with barrier notes, auto-call and bring 80% loss in a year. During this time, bankers manage to get 0.5% and another 4 times 3% commission for buying a new note.
On a note guaranteeing a return of 100% of the investment in the RTS stock index, the banker will earn twice as much. Such a structural product includes a two-year call option on the index (17%), a portfolio of illiquid bonds, which after maturity will give 100% of the initial capital. The average market yield of the bond is 18%, of the entire portfolio - 62%. Of this transaction, the banker will receive 21%, the remaining 79% - the client.
Conclusion
Structural products are not a pyramid. If you use such tools within the reasonable framework, then you can crank up a profitable deal. The same capital protection index is appropriate if credit risk is low. But most of the combined products lose in all respects only due to the inclusion of themative. In addition, no one has canceled the main rule of trade: the portfolio manager makes a profit with the client, and the seller - on the client.