Structured Investment Products
A structured product, also sometimes referred to as a market-linked product is a type of pre-packaged investment strategy that is based on such things as a single security, a variety of securities, commodities, indices, options, swaps, debt issuance’s and/or foreign currencies. There is no one single clear cut definition of what a structured product is. One feature of some structured products is what is known as a “principal guarantee” function. What this means is that if the principal of the product is held to maturity then it is protected.
Let us look at an example of this. An investor chooses to invest 100 dollars. The issuer invests in a risk free bond that has enough interest to grow to 100 once a five year period has elapsed. The bond might cost 80 dollars when it was purchased but within five years it will grow to be 100 dollars. With the money that is left over the issuer can then buy the options and swaps that are needed to perform the investment strategy.
Structured products are designed in such a way to facilitate risk return objectives that are very customized. This occurs when a traditional security such as a conventional investment-grade bond and its payment features such as the final principal and the periodic coupons are replaced with non-traditional forms of payoffs that come from the performance of one or more assets.
These products first became popular in Europe and took a few years to gain popularity in the United States. In the US they are often offered as SEC-registered products. What this means is that the products are accessible to retail investors in the exact same manner that bonds, stocks, mutual funds and exchange-traded funds (ETFs) also are. Structured products are an excellent complement to more traditional elements of portfolios that are diversified.
One of the main attractions of these products is that they have the ability to customize a selection of assumptions into one financial instrument. A lookback is a feature that many investors desire. When it comes to a lookback the value of the asset is based on the average of values taken over the term of the note such as monthly or quarterly as opposed to the final value of the note at expiration. A rainbow note is one product that is able to offer exposure to one or more of the assets that underlie the structured product.
To learn more about structured products or how to buy structured settlements do a search over the Internet. If you are an investor then you should take the time to familiarize yourself with the subject.