Is It Time To Revisit Structured Products?

But fund buyers argue the strong returns and the element of protection they offer must be weighted with their unique set of risks as well as their relative complexity.

Lowes launches structured investment strategies fund

SPs have been in existence for decades and aim to provide pre-defined returns dependent on the performance of an underlying asset, such as a market index, over a set period. 

Investors have the opportunity to receive a predefined capital gain at maturity or receive income payments over the life of the investment with initial capital repaid at maturity.

However, the products have faced criticism in the past from the likes of the Investment Association (IA). But in 2017, the IA lost a wager with Lowes Financial Management after a portfolio of five structured products outperformed a low-cost tracker, chosen by the trade body, over the course of six years.

The figures demonstrate some eye-catching returns; the average per annum return of the 927 index-based investment products, that matured in the three-year period from 1 January 2016 to 31 December 2018 was 6.8%, according to structured product research house FVC.

Over the same timeframe, not one of the 927 structured products tracked by FVC posted losses, with an average per annum return of 7.5% for capital-at-risk products and 4.3% for capital-protected products.

In order to compare the products to the performance of other investments, FVC measured three years of structured product returns to five years of point-to-point data in funds, "since this captures approximately the same time period over which the set of structured products were open".

FVC found over the last five years a typical FTSE 100 ETF returned 5.4% per annum, while one of the largest absolute return funds - in this case Standard Life GARS - returned 0.2% per annum.

With regard to fixed income, the research compared the products with the Aviva Corporate Bond fund, which it said achieved 3.6% per annum.

Why 2018 offers a more 'promising' environment for retail structured products

FVC said this was "a natural comparison" to capital-protected structured products "although bond funds do not have any guarantee of capital preservation over a given horizon".

Finally, FVC noted that deposit accounts typically earned 0.5% to 1.5% per annum over the period.

It said: "For those investors seeking equity-like returns at controlled risk it is clear that over this time period structured products actually outpaced the equity market and clearly outperformed one of the most well-known funds in the recently popular absolute return fund sector."