Date: 12/11/2012
Source: Incapital
Author: Incapital

Structured Notes Likely To Continue to Gain Popularity

Portfolio Diversification and Increased Education will be Key Factors in Growth According to an Incapital Survey of Industry Professionals

Structured notes are likely to surpass structured certificates of deposit (CDs) in popularity in the coming year, according to a survey of financial professionals conducted by Incapital, a leading underwriter and distributor of fixed income and other financial products.

The survey found that the majority of respondents believe that non-principal protected notes specifically, as opposed to principal protected notes and CDs, have the most growth potential among investors of all structured products in the near future.

“We’ve noticed a shift in investors’ appetite that is likely to continue into 2013, as more and more financial professionals are gravitating toward non- or partially-protected notes,” said Glenn Lotenberg, Managing Director at Incapital. “Our survey found that in this low rate environment, advisors are incorporating them into investors’ portfolios as a more efficient way to enhance yield and as a means to build equity exposure.”

Incapital’s non-scientific survey of nearly 100 financial professionals was conducted at the 2012 Market-Linked Products Conference on October 25 in New York. The survey assessed the overall sentiment of financial professionals surrounding structured products and their perceived key attributes and challenges.

Interestingly, the survey revealed that an overwhelming majority-–60 % of respondents--view education as the key component in making structured products more popular. Education far outweighed any of the other factors such as greater liquidity, simpler structures and lower fees as driving elements in building a stronger presence for structured products in investors’ portfolios.

“Education is clearly fundamental to the wider understanding and adoption of structured products in the investment community,” said Deryk Rhodes, Vice President in Incapital’s Structured Products Group. “There are a large number of investors for whom structured notes could be an appropriate investment vehicle. Many financial advisors and their clients, however, lack a clear understanding of what these notes have to offer, how they work, the relevant risks and the impact they have on a portfolio. We encourage advisors to visit our educational website structuredinvestments.com for guidance in demystifying these instruments.

When it comes to how financial advisors are using structured products, adding equity exposure to the portfolio (34%) was found to be the primary reason, while 26% felt that structured products were best used to replace plain vanilla income products such as CDs, and 20% use them for portfolio diversification.

Additionally, the survey found that the greatest attribute of structured products is enhanced yield, with 42% of respondents finding them most valuable for that purpose. Principal protection, access to asset classes otherwise not available and the ability to customize structures followed as additional reasons, ranging as the key attribute for 15 – 17% of respondents.



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