Structured products tipped to triple
Despite being a relatively new concept for Australian investors, structured products’ assets under management will increase threefold within the next three years, according to Barclays Capital.
The company has forecasted that potential falls in the Australian equity market will compel investors to seek the capital guarantees offered by structured products.
A structured product is a package of financial instruments that has been tailored and customised for particular outcomes based on the client’s needs.
Barclays director of structuring Anthony Wah explained structured products by comparing them to traditional investment styles.
“With traditional investments you have to buy both the upside and the downside, but what we try to do with structured products is to separate the two,” he said.
“Retail investors would use structured products to protect the downside.”
Structured products exist across multiple asset classes and can be delivered to a variety of investors including institutional, middle market, high-net-worth and retail.
Associated risks are realised if the underlying asset fails to perform, so that even though investors are guaranteed to get back what they put in, they could experience nil capital growth.
Barclays claims factors contributing to the escalation of structured products in international markets are now being observed in Australia.
These factors include the equity market’s potential volatility as it reaches full cycle, sophisticated investors emerging in all sectors, individuals with more product choices and improved supply.
Barclays estimates that by 2008, structured product assets under management (AUM) will be at $18 billion, $12 billion more than in 2005.
Barclays plans to release four new structured products in the next month, adding to the series it launched earlier this year.
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