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Structured products

Innovative solutions for dynamic investing

Would you like to quickly and efficiently leverage a specific market situation—and moreover, increase your return while simultaneously reducing risk? Thanks to Vontobel’s many years of experience creating innovative solutions in the area of structured products, we can provide you with all the support you need.

Structured products are flexible, readily tradable financial instruments that are often used to augment a modern portfolio. Due to the many variations that are possible, these products can be structured in line with practically any risk profile and any market expectation. And this can all be set up within a very short time.

 

On this page: On the current market environment • What are structured products? • For whom do structured products make sense?

 

Trend line with highs and lows (illustrative): Volatility all too often unsettles investors—yet it could also be a case for structured products

Structured products in uncertain times

A frequent consequence of conflicts such as the war in Ukraine is increased volatility—and with it, greater uncertainty among investors. Once initial gains turn into losses, panic selling may only be a step away. However, sitting on the sidelines—hoarding cash, in effect—can also be expensive, since inflation chips away at its value.

Structured products broaden your opportunities to stay invested, because they transfer the risks and opportunities of a single asset class into a different risk/return profile.

  • Three examples
    • Capital protected notes make it possible to protect against falling security prices. Even if the price of the product’s underlying security declines, you will still receive a predefined payout based on a percentage of your capital investment. On the other hand, if the underlying security’s price goes up, you will participate only partially in this gain, or perhaps only if the price gain is significant.
    • Barrier reverse convertibles also have the potential to cushion you from price declines. However, with these products your capital is less protected against a total loss. In return, you typically receive a fixed coupon during the term of the product.
    • Shark notes are a sub-category of classic capital protection products. Your investment remains protected, but the potential to participate in capital gains is limited. They are particularly suitable therefore in volatile markets, where price gains can be “locked in” before the markets decline again.

Official portrait of Andreas Blümke, Head Structured Products at Vontobel Wealth Management
Andreas Blümke
Head Structured Products Wealth Management, author of the classic “How to Invest in Structured Products”

“Not all risk is the same.”

Even investments that, on their own, would be considered high-risk can provide tremendous risk-reduction potential within the more comprehensive context of an entire portfolio. What is important is to achieve targeted diversification by including different asset classes and products that have the least possible correlation to one another. This is how an intelligent risk-return profile can help you remain invested even in turbulent times.

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Over many years, Vontobel has gained profound and valuable expertise in the field of structured products and is considered one of the innovation leaders in these financial instruments in the Swiss market. Thanks to its open product architecture, Vontobel also offers you access to a wide variety of alternative providers of structured products.

  

What are structured products actually?

Under­lying   +   Deri­vative(s)   =   Structured product


Schematic representation: Structured products are investment solutions that consist of an underlying instrument and at least one derivative, or several derivatives based on it. © Vontobel

  • Forming the basis of each structured product is a so-called underlying. This can be a financial security (such as a share or bond), a reference value (such as an index or interest rate), or some other traded asset (such as a commodity or foreign currency). By adding one or more derivatives to this underlying, you create a structured product.
  • A derivative, as the name suggests, is a financial instrument that is derived from the underlying. Its value or payout (“coupon”) depends on the properties of the underlying—or how it develops. Well-known examples of derivatives are options or futures, the value of which changes depending on whether the price of their underlying is rising or falling.
 
  • Ever heard of the “car analogy”?

    Structured products have a reputation for being complex financial products. One reason for this is the wide array of objectives that investors can use them to pursue. We have had good experience explaining the basic principles with a simple analogy.

    What do structured products have to do with modern cars? An analogy

    • The car’s airbag can protect you from the worst outcome, should an accident occur. The same applies to capital protected notes.
    • The anti-lock braking system, ABS, improves braking performance to mitigate or, in the best case, even prevent an impact. The same goes for barrier products.
    • The car’s GPS can get you to your destination faster when traffic is backed up or not flowing as usual. The same applies to participation and leveraged products.
 

  

For whom do structured products make sense?

With structured products it is possible to take advantage of short-term market opportunities, and this means that market expectations can be specifically targeted. Almost any market expectation can be exploited this way.

The formation of such a product can be implemented quickly: from idea to issue may take only a few days, sometimes even only a few minutes. Unlike equities, structured products can be set up so that they not only benefit from market upturns, but also take advantage of sideways or downward moving prices.

We give you access to various thematic investment ideas and markets. In doing so, we always take your needs into consideration, combining this knowledge with our own market expectations as well as taking the current market situation into account. This is how we structure an investment that both perfectly suits your needs and is also efficiently embedded in your portfolio. By the way, we can create a structured product for an investment as small as CHF 20,000.

  

Graphic: What factors make up a structured product? The most important three: investment preferences, market expectations, structuring factors

  

  

Keep in mind

Greater flexibility inevitably leads to more complexity. This means that the more detailed your personal market expectations are when designing the derivatives that will be linked to a structured product, the more challenging it may be to foresee potential interactions and cross-currents. Risks can never be ruled out completely, and inexperienced investors may only partially understand them. This is why we recommend that our Wealth Management clients take full advantage of the opportunity to get advice from their Relationship Manager.

 

  

Even the smallest undertaking starts with a conversation

 
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