Structured Products
A structured product may be best described as a pre-packaged investment strategy which is typically derivatives based, and the underlying assets may include a single stock, a basket of stocks, options, indices, commodities, debt securities and/or foreign currencies. The variety of products just described is demonstrative of the fact that there is no single, uniform definition of a structured product. Structured products are created to meet specific needs that cannot be met from the standardized financial investments available in the market for retail investors. Structured products can be used as an alternative to a direct investment, as part of the asset allocation process to reduce risk exposure of a portfolio, or to obtain leverage to a current market trend.
Benefits of structured products may include:
principal protection
tax-efficiency
enhanced returns due to leverage
reduced volatility (or risk) within an investment
the ability to earn a positive return in low yield or flat equity market environments
Disadvantages of structured products may include (but are not limited to):
counterparty risk
lack of liquidity
no daily pricing
complexity of the return calculations