Structured products, an alternative to funds in euros


If euro funds remain relevant when it comes to securing savings, they are also less and less profitable: since 2010, their rate of return has practically been divided by three (1). Long considered complex and risky, structured products now offer an attractive alternative to savers who wish to diversify their investments and obtain a higher return.

2020: annus horribilis for the financial markets

The year 2020 has not been kind to investors. While the health crisis has generated a savings surplus of 200 billion euros, savers, seized with fears and stricken with immobility, continued to save on their current account and their Livret A. Bond media have continued to lose their attractiveness, and equity markets, marked by high volatility, are causing wait-and-see action rather than enthusiasm.

However, today there are investment vehicles combining return and moderate risk-taking. Because they combine the safety of bonds with the performance of stocks, structured products may well become the investment of choice for those who want to diversify and increase the return of their portfolio.

The parameters to consider when choosing a structured product

With the entry into force of MiFID 2 in January 2018, structured products have become more transparent, more secure and investor protection has been improved. They now include diversified financial instruments. In addition, they can no longer be issued and structured by the same legal entity, nor by entities that have close ties.

However, a few points below should be considered before investing in a structured product:

The underlying: it determines the potential return and the level of risk of the product. In a context of high volatility, an index underlying will offer some protection against variations that may impact a particular stock.
The coupon: this is the income (gain / rate of return paid to the investor) resulting from the increase in the index.
The level of capital protection: it depends on the airbag, which minimizes the exposure of the capital in the event of a decline in the underlying. Observation deadlines: they determine the dates on which the automatic reimbursement mechanism is triggered in the event of an increase in the underlying.
The capital barrier: it sets a limit to the potential loss.
The lifespan of the product: it indicates the time during which the funds will be immobilized.

Finally, structured products of the autocall type are to be preferred: they can be redeemed early if certain conditions are met. By way of example, if on the date of observation the price of the index is higher than the reference index, all the coupons are paid (including those in memory) and the product is extinguished.

The structured product is a compromise to familiarize yourself with the stock market. Above all, it offers attractive performance, particularly on the bond market and, in view of the current economic situation, appears to be an excellent risk / return ratio, all the more so if it is housed in life insurance which itself benefits from a attractive taxation!

Why invest in structured products?

The year 2021 promises to be less hectic than 2020. The vaccination campaigns being organized in Europe and around the world should make it possible to start the recovery and to clear the economic horizon. Without a doubt, the central banks will continue their policy of low interest rates in order not to increase the debt of the States, with as a consequence a stagnation or a decrease in the yields of funds in euros. In this context, structured products offer more than interesting diversification possibilities, especially if they are backed by an index underlying which will “smooth” the risk of volatility specific to the equity markets.

Investors who wish to boost and diversify their investments therefore have every interest in examining the possibilities offered by structured products. The contracts offered by online brokers make it possible to benefit from personalized advice, for lower fees than those charged by the big banks.

1) French insurance: key data 2019, FFA.