SRP AMERICAS
SRP Americas 2022: investor knowledge driving demand for structured products Structured products are gaining ground with US investors seeking a flexible alternative to the essential components of a diversified financial portfolio.
There is innovation in the decumulation phase
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ooking at profiles of current investors, a panel of industry executives from the US and Latin America chaired by Christopher Schell, partner at Davis Polk & Wardwell, discussed wealth managers’ experiences of retail clients, looking to allocate to, or expand their exposure to structured products within their portfolios, and what tools are being used to monitor performance. Macro external factors such as inflation and interest rates have been affecting client behaviour as we move through 2022 and a shift in the product mix. “Fixed income has attracted some investment recently, but the yield isn’t there yet,” said Abdess Khaled (pictured), head of structured product and derivatives pricing at Bloomberg. “We expect structured products to play an increasing role in investors’ portfolio allocation to improve Sharpe ratios as the classic bonds and stocks approach is not doing the job for investors. “We also see a lot of innovation in the decumulation phase and increasing demand for personalisation and customisation and payoffs which plays nicely with what structured products can offer. The mix of products is changing somewhat with a shift towards capital protected products but with the higher volatility in the market demand for yield enhancement structures will remain although with more conservative barriers.”
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Steve Czick, head of product, strategy & issuer relations, iCapital Network, noted that over the last two quarters several clients have moved into index-products and are seeking opportunistic trading when it comes to equity. According to Czick, iCapital’s hypothesis when it comes to separately managed account (SMAs) which have tax advantages similarly to mutual fund and can act as an umbrella for different investments and product types, is that structured investments offer clients a vehicle that looks and feels much more like every other investment that they're doing on the advisory side, and allows them to capitalise on the rates increase and deploy as an alternative to traditional bonds. “We've been able to deliver a strategy that year to date is only down around two percent and has a yield right now in the 91%11% range,” he said. “This kind of strategy is serving as a clear alternative to basically help advisors in their conversations with clients worried about inflation, and the performance of traditional bond portfolios.” According to Czick, of the 150 iCapital SMA accounts, roughly 25% of them have reinvested on their original investment which is a sign that once people are in. “They are happy to move money away from traditional bond
