Structured products in the 10-years since the Financial Crisis
Structured products have proved to be one of the best performers over the past decade, with 88% producing a positive result for investors, according to research from Lowes Financial Management.
The group’s United Kingdom Structured Product Sector Review* analysed the 4,398 structured products issued since the 2008 financial crisis. The sector as a whole returned an average annual return of 6.23% between January 2009 and December 2018, with just 57 of the 3,670 products which had matured in the time period resulting in a loss.
The group said the strong performance was as a result of gains produced by FTSE 100-linked products, with only five such products producing a net loss over the 10-year period.
Ian Lowes, managing director of Lowes Financial Management, which manages almost £1bn of assets and has invested over £380m invested in structured investments on behalf of clients, said: “Some people have been wary of the sector since its early days, but the numbers speak for themselves. Not a single product matured with a loss in 2018 and only five FTSE 100-linked products matured with a loss since 2009. The sector has consistently produced steady and predictable gains, which have helped our clients achieve their financial goals.”
Source: Lowes Financial Management
Ian Lowes said a number of key trends have appeared over the past 10 years, including the increase in autocall products issued. In tandem, there was also an increase in products issued with extended term lengths. Whilst three quarters of the autocall products issued in 2009 had a maximum term of less than six years, by 2017 all had a maximum term of at least that length, and now more than half of autocalls issued will continue to later years if market conditions dictate it necessary.
The market has also seen a rise in the issuance of capital-at-risk products. And of the 2,273 capital-at-risk products that matured in the time frame, just 2.3% produced a loss.
In addition, the counterparties active in the structured product sector in the UK has changed since the financial crisis. Barclays exited the sector, having accounted for a quarter of products issued in 2009. Investec, previously accounting for a third of the sector in 2009 continues to remain a notable name, accounting for 36% of all issuance in 2018.
The range of counterparties in 2018 diversified, with banks such as Credit Suisse, Goldman Sachs, HSBC, Morgan Stanley and Société Générale all accounting for similar shares of the market.
Lowes added: “Since 2009 we have seen extensive developments in the structured product sector. Advisers have recognised the strength of the capital-at-risk autocall, offering substantial return profiles that rival those of equities. The longer maximum terms for autocalls provide improved potential for positive outcomes.
“Structured products have come on in leaps and bounds, and we firmly believe the future of the structured products is in an easily accessible UCITS vehicle.”
Lowes recently launched the Lowes UK Defined Strategy Fund, a UCITS vehicle which invests in a variety of strategies, most commonly seen within structured investments.
* Read the United Kingdom Structured Product Sector Review: STRUCTURED PRODUCTS – 10 Year Report