US Structured Products

Over the past few years, structured products and structured investments have risen in popularity amongst investors, and are starting to become an “IT” product. The Structured Products Association or SPA has issued a statement claiming that last year saw the industry come out with $64 billion worth of US structured product investments, a large improvement over the recorded $48 million a couple of years ago. The problem is that very few investors have any actual idea about what a structured product really is. A recent report by the Spectrem Group has posited that only eighty five percent of affluent investors have working knowledge about the complexities of structured product investments.

Definition Structured Products

Structured Products are more complicated but can be defined as financial instruments that can provide an investor with latent opportunities to earn a higher return on the initial investment. Structured products have returns that are usually connected to the performance of thighs such as equity markets, commodities, interest rates, corporate credits or foreign exchange.

At the basest of levels, a structured product contains two common elements such as A.) a bond product or some other means of capital protection and B.) an alpha generator or any financial instrument such as currency or stock.

Structured products, particularly U.S. structured product investments, offer a means of protection for part of or the entire capital originally invested. In the context of capital protected structured product, an investor may have as much as a hundred percent of his invested capital protected, which is the reason why a lot of investors prefer structured product investments and consider it worth the investment purely because of the possibility of a high profit with very little risk involved.

Some businessmen are also involved in US structured product investment primarily because they increase the attractiveness of their business portfolio due to its flexibility to customize investment structure, based on specific financial objectives.

Specific Examples of Structured Products

As explained in the earlier parts of the article - despite its popularity, structured products are still misunderstood by many investors and they have no actual idea as to whether a product or investment is considered as one or not. Technically, as long as it is a pre-packaged investment strategy that rests largely on derivatives (such as swaps or options), it is considered a structured product.

• Limited partnerships with flow through share are one of the most common examples of a structured product; for example, the Enervest FTS Limited partnership of 2004 and the Pathway Quebec Mining for this year.
• Income Trust Funds are also popular by themselves due to their stated goal of consistent cash flows and payouts for diligent investors suffering from low cash yields on bonds.
• Hedge Funds - private investment funds that charge a nominal fee for performance and open only to a limited range of qualified investors.
• HYBP or high yield bond portfolios. High paying bonds that come with lower credit ratings than investment-grade corporate bonds. These types of bonds pay a higher yield due to the high risk of default.