I have been involved in Structured Products for well over 15 years and know them to always have had a great story wherever the markets were and wider Investment landscape, as indeed the current cycle.

In the past, a peak in the market cycle may have provided a perception that Structured Product terms reduce and therefore their advantages, however, their protections on the downside, compared to increased downside market risk perceptions for both Passive & Active Management, would indicate an increased advantage.

In my own honest opinion, I have analysed the different positions for Structured Products in context with Passive/Active management:

Firstly, it is worth pointing out that this is not an overheated peaky market after a long bull run, indeed the FTSE 100 has been range bound for about 5/6 years or so within 7000 – 8000*, apart from the sharp Covid blip. Also, arguably the FTSE 100 has had very little growth since it was at 6930 on the 31st December 1999*, as it stands at approx. 7930 in April 2024* (Source: Yahoo Finance), therefore has been heavily reliant on Dividends. Arguably, range bound markets are great for Structured Products and not good for Passive/Active and they don’t want to rely on Dividends at approx. 4%, when both Inflation & 10 Year Gilt Yields are at approx. 4% as well.

The present Structured Product position is as follows:

Structured Deposits will continue to offer a story if as expected we are in a higher interest environment for longer, albeit tapering back a bit. Especially, as they also offer a genuine Cash plus strategy and an alternative for the troubled Fixed Interest asset class. Any downside market risk is alleviated with Full Capital Protection at maturity and FSCS cover against Bank default. IDAD offer a potential 7.5% pa Flat UK/EU Kick Out (Growth) Deposit & a UK Range +/- 20% potential 6.35% pa (Income) Deposit. 

Structured Products (Soft Protection), whilst the terms have been held back in the last 2 years due to steady market growth and low volatility, you can still gain some healthy coupons. Generally, FTSE 100 Flat Kick Outs are around 8.5% to 9.5% pa ok for range bound markets and the defensive ones are around 6.5% pa to 8.5% pa to provide more reassurance against market fall backs. IDAD have a very attractive Flat UK/US 10.7% pa Kick Out.    

To cover a few opinions on where the markets may go from here in the next 5 years or so:

  • Bullish viewpoint – Structured Products, (Soft Protection), are still offering 10% to 12% p.a. type trades that don’t require the markets to rise or marginally and this will still look attractive against Passive and some Active players.
  • Marginal Growth expectations/Range Bound – All the Flat (Soft) Kick Outs will be well placed to deliver healthier returns than all Passive types and arguably most Active. Indeed, even some Deposit trades will look attractive in comparison to Passive.
  • Wary of a reasonable correction/downside market risk – Structured Deposit trades and the defensive Soft Protection plans will be well placed to ride out this type of cycle, whereas both Passive and Active will struggle.
  • Significant Bear Market – Structured Deposits will be a saving grace if this plays out, as indeed some of the deepest defensive Soft Protection plans, but will be a massive headache for all Passive/Active providers!

It is worth highlighting that some Structured Products will have a different underlying, for instance, IDAD have an Oil Income plan with a potential 9.16% pa, with a memory feature, relying on WTI Crude Oil to be at 75% of the starting price and 50% Capital Protection barrier. This will suit IFAs/Clients with a positive view on the price of Oil, with Ukraine issues & OPEC countries having control of supply to keep pricing honest for them.