Britain’s appetite for structured products has grown significantly over the past few years.
According to structured retailproducts.com, the market grew from around £1bn in 199, to £6bn in 2007. Blue Sky Asset Management, a specialist structured products business which launched last year, expects the market to expand by a further £2bn-3bn in 2008.
Structured products are designed to provide exposure to various asset classes, with the added benefit of capital protection.
Barclays Capital, for example, offers products linked to equity indices, single stocks, baskets of stocks, currencies, interest rates, commodities and funds. Investment terms can be as short as one month or as long as 10 years, and protection runs from 0-100 per cent.
Kypros Charalambous, an associate director at Barclays Wealth and an Adviser Fund Index panellist, says structured products are a “central theme” in the firm’s portfolio service. He says: “We started using structured products three or four years ago to get exposure to the Nikkei. We use them in different ways – long-dated products for markets like the US where most funds underperform and for tactical calls where we identify inefficiencies.”
Charalambous has rec- ently bought products offering exposure to emerging markets equities and commodities. The emerging markets product has a feature which doubles market exposure following rolling 20-day periods of low volatility and reduces gearing to zero after spells of heightened volatility. The commodities product is tilted towards coal and soft agriculture.
James Davies, investment research manager at Chartwell and an AFI panellist, says stockmarket uncertainty has made structured products more attractive, but he expects demand to continue in the long-term. He says: “If an investor needs a fixed and known level of income or growth, structured products are a potential solution. From an adviser’s point of view, you can go to a manufacturer and say we have got this amount of capital, what can we get? Advisers can get a bespoke solution.”
Chartwell signed a deal with Blue Sky in February to launch the protected income plan, which closed on March 7. The firm is now using Blue Sky’s protected income plan II, a six-year product offering a fixed 10 per cent annual payment. Both products are based on a portfolio of the big five banks – Barclays, HBOS, HSBC, Lloyds TSB and Royal Bank of Scotland – and offer 100 per cent capital protection at maturity, provided none of the stocks falls by more than 65 per cent.
The panellists are restricted to holding traditional funds in their AFI select- ions but the index has indirect exposure to structured products through several portfolios. These include SVM global opportunities and Midas balanced income, which appear in the balan- ced and cautious indices. The £700m Midas multi-asset fund has an allocation of around 12 per cent in structured products – just three percentage points below its maximum.