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What is a structured product?

" By Christian Büsel
Barclays Private Bank

A structured product is a debt security that provides investors with a redemption amount, and a return that is subject to the performance of a specified strategy on a selected underlying asset or asset class.

Structured products comprise a fixed-income component with one or more derivative components. The engineering may be complicated, but the rest is very straightforward.

An alternate route: Structured products offer an alternative route to traditional asset classes by making use of new investment technology.
The return: Either the redemption amount and/or coupon are calculated with reference to a specified strategy on a selected underlying asset/asset class.
Market exposure: This can be linked to equity indices, single stocks, a basket of stocks, currencies, interest rates, commodities and investment funds.
Maturities: These vary depending on the strategy, client preference and market opportunity and can be from as little as one month in maturity to over ten years.
Adaptability: Exposure to underlying assets can be configured to reflect prevailing market conditions or a specific client view.
State-of-the-art technology: Generally constructed using derivatives, structured products enable private investors to access state of the art investment technology.
Risk diversity: Different products offer different degrees of capital protection, from full to zero, enabling the creation of products to suit all risk appetites.
Secondary market: As a leading issuer of, and counter-party to structured products, the Barclays Group readily provides a secondary market to its clients, which allows investors to increase or decrease exposure to reflect changing market conditions and personal preferences.

At Barclays Private Bank such structured products are integral to the overall wealth management proposition. Our approach to the launch of any particular product is the result of an ongoing process involving the client’s individual needs, the private banker, the product team and the various counterparties that they work with.

In many instances the launch of a structured product is initiated by a special request from a client for an investment that meets their individual investment needs.

Structured products are typically used:

By utilising them within a discretionary investment portfolio;
Or even by constructing a specific structured product portfolio.

Whichever way you use them, structured products offer liquidity, diversification, flexibility and adaptability to your wealth management strategy.

The asset classes and strategies used include:

Equities: Products linked to a basket of stocks or an equity index, offering exposure to equity markets with a pre-determined level of capital preservation and with different maturities, remuneration, currencies and participation of performance of the underlying stocks/indices.

Interest rates: Products designed to benefit from different interest rate scenarios. A broad choice of length, currency and remuneration combinations are put in place to take advantage of all interest rate outlooks.

Funds: Linked to selected alternative funds, these products use highly sophisticated mechanisms aiming to yield high returns of the underlying funds, with limited capital erosion on the downside.

Commodities: Oil, real-estate, metals (gold, silver, copper, aluminium) are some of the possible underlying commodities for products that offer opportunistic returns according to macro-economic momentum.

Foreign exchange: Currency pairs are a perfect example for strategies that can act on both the downside and the upside of the underlying currency/currency pair.

Two examples of the opportunities:

Four-year best of strategy product (USD)

98% capital protected, linked to three diversified portfolios – defensive, balanced and growth. At maturity you get 50% of the performance of the best performing portfolio, 30% of the performance of the second best portfolio and 20% of the performance of the worst performing portfolio.

Twelve-month topside strategy (GBP)

100% capital protection, Copper/Brent Crude, return of +7% if both are above 90% of the initial value.

Structured products offer an alternative, but complementary route to traditional asset classes, allowing the investor to tailor their market exposure to their specific yield, risk and time requirements, and if held to maturity, take advantage of the guaranteed capital protection that can also be built into such investments.

Barclays Private Bank also provides a loan to value ratio of approximately 80% for many structured products, allowing them to be used as collateral for any client borrowing requirements, thereby increasing flexibility within wealth management strategies.

It should be pointed out this article constitutes neither an offer to sell nor the solicitation of an offer to buy any security, and is not intended to set forth a final expression of the terms and conditions of any security.

Neither does the article purport to identify or suggest all of the risks direct or indirect that may be associated with these products.

- To find out more about structured products and how they can enhance your wealth, please contact Christian Büsel .

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