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As technology continues to expand the FinTech industry, investors now have more personalized investment opportunities in the form of structured notes. Structured notes were usually beyond the reach of ordinary investors, with only the very wealthy able to invest by having sufficient capital to meet minimum deposit requirements.

The evolution of structured notes is driven by companies’ preference for digital transformation in 2022, with a staggering 65% year-over-year growth.[1] This was published in the EY Parthenon 2022 Digital Investment Index (DII), which surveyed 1,500 global C-level executives from January 2022 to March 2022.

Below are the highlights of this survey:[2]

  1. Digital transformation is seen as a critical business imperative and critical to survival.
  2. Success depends on achieving the right balance of organic and inorganic investment vehicles.
  3. Executives’ optimistic perception of this is based on the idea that increased spending will almost double their return on digital investment (RODI) compared to 2021.
  4. More businesses are now tracking RODI, but it’s a slow process and many are unsure of what has been spent or the value of their profits.
  5. A select group in this digital transformation space (Digital Performance Leaders) drives momentum and successfully executes digital investments.

The evolution of structured products

An important reason for the evolution of structured notes is that they allow retail investors to access higher returns that fixed income options cannot offer. Technology now provides tools and calculations for even the most structured products that are not traditional financial products and are essentially derivatives.

In a market where traditional asset classes were more dominant, one of the previous problems with buying structured notes was their lack when it came to assessing risk through stress testing and scenario analysis. It is an important part of an investor’s portfolio because it allows you to predict whether a financial product will help achieve the investor’s goal.

Investopedia defines it as “the process of estimating the expected value of a portfolio after a certain change in the values ​​of the key factors.”[3] Where computer algorithms can run simulations of worst-case situations or events and provide a projection of that.

The beginning of structured products

Let’s take a brief look at the humble origins of SRP-derived structured products. Structured products have become a solution for retail investors, providing “a way to access stock market returns without capital risk.”[4]

In the 1980s, structured products were first sold in France, and the technology quickly spread to the UK. The rapid expansion of this market soon spread to Asia in the 1990s.[5] As a result, these financial products are now well-known investment vehicles around the world – available from leading banks, financial institutions, insurance groups and other businesses.

The power of technological innovation

Back in 2015, the global financial crisis in structured products pushed the financial industry to look for solutions to overcome market inefficiencies.[6] This included finding ways to simplify the creation and implementation of these investment vehicles.

1. Optimal individual structured product[7]

Automation and streamlining of structured note issuance processes were a years of attention with the emergence of new digital tools and platforms. This not only allows the issuer to offer better pricing recommendations and lower costs along with improved automation, but it also provides customized solutions for each investor. The addition of tailoring each structured product to the unique preferences of the investor made this solution scalable and contributed to the growth and appeal of structured products.

2. Mass customization is now possible[8]

Technology has enabled mass customization of a structured product based on investment algorithms that can match investor preferences at the click of a button and in seconds. Compared to when structured products were first available for investment, this type of functionality took an entire day to compute.

The growth of structured products has received a certain boost with the development of technology. According to Bloomberg, the potential of this industry in the field of retail trade is excellent. In 2019, structured products accounted for 1% of the $700 trillion (USD) total asset value in global financial markets.[9]

Even when accounting for the hedge fund industry and exchange-traded funds (ETFs), the combined notional value of institutional and retail liabilities is more than double both of these factors.[10] This suggests that structured notes as an investment vehicle for investors are a powerful tool and that investors should devote themselves to better understanding how they work.

Adding structured notes to an investment portfolio

According to the modern portfolio theory of reducing market volatility through diversification,[11] the boom in interest in structured notes has led to the emergence of companies that focus exclusively on this class of investment assets. Our partner Cashbox Global is a financial services organization registered with the Financial Services Commission of Mauritius that provides global investors with access to international structured notes. Cashbox Global does not provide investment advice and does not make any investment recommendations.

Their view on structured notes is that structured notes offer a number of advantages that appeal to institutional and retail investors. The reason for this is that structured notes are more flexible assets that can be personalized based on an investor’s risk/return profile and investment objectives.

Wealth Migrate strongly believes that structured notes are a good portfolio diversification solution and that an investor should ideally include a mix of alternative and traditional assets. Every investor should learn the risks and returns of their investment portfolio and make informed decisions – with the help of a financial planner, through self-assessment, or a combination of the two.

As part of our continuing education series, in our next article, we will delve into the emergence of co-housing as an asset class and analyze the growth in demand for such assets.

More Wealth Migrate content can be found here:

Read our articles on diversification:

Read our articles on structured notes:

Listen to our podcast:

[1] Wang, J., McGarity, L., and Ulrich, P. and others (April 2022). “How can your digital investment strategy achieve greater profitability?”. Retrieved from EY.

[2] Wang, J., McGarity, L., and Ulrich, P. and others (April 2022). “How can your digital investment strategy achieve greater profitability?”. Retrieved from EY.

[3] Hayes, A. (May 2022). “Investing: Portfolio Management.” Retrieved from Investopedia.

[4] Structured retail products. (2022). “A History of Structured Products.” Obtained from SRP.

[5] Structured retail products. (2022). “A History of Structured Products.” Obtained from SRP.

[6] Habis. (July 2015). “Panel highlights technology platforms to develop structured product offering.” Received from Hubbis.

[7] Jashari, B., Johnson, P. and Shuman, N. and others. (August 2019). “One click to the optimal customized structured product.” Retrieved from SwissQuant.

[8] Julius Baer. (September 2019). “Digital Supermarket for Structured Products”. Obtained from Julius Baer.

[9] Fara, K. (October 2019). “It’s time to realize the potential of structured products.” Retrieved from Bloomberg.

[10] Fara, K. (October 2019). “It’s time to realize the potential of structured products.” Retrieved from Bloomberg.

[11] Meyer, E. (November 2020). “Why structured notes are the same with the most innovative options come out since then mutual fund”. Retrieved from Worth.

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