If you're still sceptical about an equity market recovery without an economic one, it's easy to see the appeal of structural products. In a nutshell, you get exposure to the upside, but with a capital guarantee of some form in case markets fall out of bed.
Both the size of the market and the range of products on offer have expanded dramatically over the past couple of years. According to www.structuredretailproducts.com, the UK market for structured investments in 2009 pipped £13.6bn - up 50 per cent on 2008 sales. Yet paradoxically, that growth has taken place against a backdrop of increased wariness on the part of investors.
Never had it so bad?
Justine Fearns, investment research manager at AWD Chase de Vere, takes a pretty downbeat view of the industry: "Sentiment towards structured products is worse than before. Some advisers and investors are realising that they never really understood the risks of these products in the first place." Ms Fearns reports that despite the alleged rise in sales, her own firm is "selling far fewer, mainly because there are fewer that we are happy to recommend, particularly in regard to financial strength and pricing."
The bottom line remains the fear of default on the part of the bank backing the product. After all, Lehman Brothers, which had underwritten a number of structured products in the UK market, collapsed in 2008, as did structured investment provider Keydata last summer.
However, most would argue that the likelihood of, say, Barclays or HSBC hitting the skids and being allowed to collapse without government intervention is pretty low compared to the risk of a nasty market correction. In such an environment, to investors for whom memories of global markets in freefall remain fresh and scary, structured investments offering full or partial capital protection may seem attractive, despite the counterparty risks lurking in the background.
