The wealth and investment management division of Barclays has seen tremendous traction in its Asian structured products business, with volumes tripling from 2010. Asia now accounts for 50% of structured products sales in the private bank globally.
It has also seen strong growth in its Structured Products business in the Middle East, with increasing interest from the region’s high net worth individuals in short-dated notes (from one to twelve months maturities) and focused underliers for wealth accumulation. This is a shift from longer-dated notes spanning three to five years with principal protection features and diversified underliers for wealth preservation.
“While there have been negative connotations around structured products post the financial crisis in the minds of investors, increasing the simplicity and transparency of our product offering have helped in making investors more comfortable with these investments. As investors look to increase returns in a low-yield environment, structured products offered value in helping generate targeted returns and reducing risk exposure as part of a diversified asset allocation portfolio strategy,” said Ms. Irene HY Chen, Head of Structured Products, Asia Pacific, Middle East and Africa.
The success in both Asia and the Middle East has been driven by a growing appetite for equity, commodity and currency-linked products, as investors searched for yield while seeking to manage downside risk. The common theme among popular structured products is that of simplicity and transparency, with short tenors, enhanced yield and early redemption options. The main trends in 2013 are expected to continue to drive demand in 2014. These include:
- The dominance of equities as an asset class in Asia: A couple of evergreen equity linked structures continue to be strongly favoured by investors, including Index Linked Rate Notes and Fixed Coupon Notes of blue-chip stocks and major indices in Asia, the US and Europe.
- Currency plays: The renminbi remains the darling in Asia in terms of currency-linked notes, with digital options or participation options forming the bulk of structured products with FX underliers.
- Commodity-linked structures: Amid the volatility in oil prices, oil-linked notes remain popular in the Middle East, with fixed coupon notes, step-down autocallable notes and twin-win notes in demand.
- Simple vanilla options: The OTC business across asset classes such as bonds and equities continues to be well received by investors for its efficiency, effectiveness and simple investment rationale.
“With the current market uncertainties, it is timely to look at vanilla options as basic building blocks to tailor the risk vs. return balance in one’s investment portfolio. For instance, investors with a bearish view on a specific market can buy a put option on the market index which can help with hedging. Investors who are bond advocates can sell a put option and gain access to the secondary market at an advantageous purchase price, while enjoying an upfront premium if they are committed to own the bond in their portfolios. These simple vanilla options help investors better manage their risks even as they remain invested in the market,” concluded Ms. Chen