The ins and outs of structured products
Investing is becoming ever more complex and sophisticated, offering investors an incredible array of opportunities to help meet their financial goals.
Constructing an ideal portfolio is often thought of as a balancing act between high-yield equities and stable fixed-income investments. However, the growth of structured products continues to pique the interest of many of today’s retail investors.
Structured products are a broad category of pre-packaged financial instruments available to investors, often used as a supplement to traditional retail investment portfolios.
These provide payoff profiles based on a set of preconditions. Therefore, it can remove some of the uncertainty that comes with medium‑term to long-term investing, while still offering attractive returns.
Here we unpack some of the benefits and important considerations of this form of investing, with a focus on the Discovery Capital 200+.
The Discovery Capital 200+ is a five-year investment that pays investors double their initial investment after five years on a gross basis (before taking into account fees and taxes). This is provided that a portfolio of global shares is flat or moves up at the end of the five-year period.
If the global share portfolio does not fall by more than 35%, the Discovery Capital 200+ still guarantees some limited capital protection against losses.
The benefits
Historically, the Discovery Capital 200+ has seen investors in its July 2014, May 2017 and September 2017 tranches effectively double their investment in nominal terms over just five years before the effect of fees and taxes.
Compared to the underlying share portfolio’s relatively mute performance of just 4.8% over the same period for the 2017 tranche, this is significant relative outperformance.
If the portfolio performs exceptionally well, so does the investment, as there is an unlimited upside potential if it grows above 100%.
Therefore, a product such as the Discovery Capital 200+, which is open until 24 November, may be suited to investors who have a view that global equity markets will be flat or improve over the next five years.
Furthermore, the Discovery Capital 200+ qualifies for Discovery’s boost of up to 20% on its lump-sum Endowment.
Another key benefit is that the capital-protected nature of the investment means that investors are guaranteed a downside protection. This is provided that the global portfolio does not fall by more than 35% during the period.
Taken together, the features of the Discovery Capital 200+ are designed to provide high investment returns while still offering some degree of capital protection in negative markets.
The considerations
For investors considering their options when it comes to structured products, it is typically a good idea to consult with a financial adviser and read the conditions to evaluate some of the trade-offs, as compared to other investments.
Loading ...
