Insights |04.04.2023
Structured Products: Opportunities for 2023 and Beyond
With 2023, we are facing another uncertain year. According to Goldman Sachs, the swift change from pre-pandemic growth cycle and favourable market conditions to today’s “rising interest rates, stable profit margins, and high starting valuations” signals that volatility is here to stay. But professional investors see opportunities in the volatile markets. This reversal of tailwinds is likely to particularly benefit the development of the market for structured products. At the end of September 2022, trading venues in Europe were offering 414,250 investment products and 1,641,658 leverage products, a 3% quarterly and 14% annual increases. Currently the market for Austria, Belgium, Germany and Switzerland only, is valued at EUR 289 billion. [1]
What are structured products?
Structured products are securities that combine multiple assets and derivatives and are tailored to the needs of a specific investor. [1] These products have become increasingly popular in recent years, as they offer asset managers and banks an instrument to customize their investments to meet the specific goals and risk tolerance of their clients. For example, if an investor is looking for a product with an ESG component focused on reducing carbon emissions, Digital Waves' Rainforest CO2 Reduction CLN is a good example. This product allows to invest directly into the purchase of rainforest in Paraguay, making it a tangible contribution to the reduction of the global carbon emissions. And this use case is just one of a wide range of investment opportunities with structured products that is virtually unlimited, from sustainability projects to the private equity of leading tech companies.
In the context of Swiss market, it is important to draw the distinction between the structured products and Struki, type of structured products specific to Switzerland. Strükis typically have listed liquid underlying assets, often 2-3 stocks such as of Nestle, Roche and UBS, with the bank offering a variety of structured product options with fixed term and different features such as guaranteed coupons and barriers. The availability of platforms created by esteemed Swiss banks such as Vontobel and Julius Baer, as well as specialized marketplaces for structured products, such as Leonteq, offers asset managers an efficient means of exploring the different combinations of underlying assets, features, and terms. With just a few clicks, these platforms enable asset managers to create a custom-fit product, tailored to meet the unique needs of their clients.
Structured products in their wider sense offer a range of investment opportunities in the alternative assets space. Strükis, which also translate to structured products from Swiss German, have a more focused scope and a wide range of underlying combinations but a more limited choice of underlying assets themselves.
In this article, we will explore the trends that are affecting both domestic Swiss market of structured products with the focus on the digital platforms development for Strükis and the global trends such as sustainability, thematic investments, and digital assets.
Structured Products and Digital Assets
According to the SRP Crypto Report 2022, structured products are essential for facilitating client adoption of an emerging asset class such as digital assets. [2] Choosing a structured product for entering the crypto market can provide exposure to a wide range of digital assets, such as Bitcoin, Ethereum, and other cryptocurrencies, in a single investment. This can be beneficial for investors who want to diversify their portfolio across multiple digital assets without having to purchase and manage them separately.
In September 2022, there were over 2500 structured products linked to cryptocurrencies. [2] Initially most digital asset structured products were simple dual-currency investments, but they have been growing in complexity more rapidly than any other asset class. This surge in more diversified products, in terms of range of digital asset and investment strategies, is primarily driven by the investor demand to protect themselves against the volatilities of the crypto market. In addition to increasing sophistication of investment strategies and diversified digital assets, we will also see thematic investment products thematic investments such as DeFi and Metaverse indexes continue to grow in their complexity and innovativeness. Over the recent year thematic investment market size have surged reaching $806 billion in assets under management at the end of 2021. [6]
ESG
According to LGT, ESG (environmental, social and governance) trend is the leading driver of the growth in thematic investments. Its global assets on track are set to exceed $50 trillion by 2025, according to Bloomberg Intelligence. Structured products are directly reflecting the trend, being one of the most flexible tools in thematic investing.
Global structured note issuance saw a significant increase of 53% last year, driven in part by investors seeking customized exposure to environmental, social, and governance (ESG) considerations. [5] ESG-linked structured products issuance has seen a rapid rise in recent years, growing from zero to around $10-15 billion. The reason behind this sharp increase is the rising interest of investors in customization of their exposure to ESG factors. This trend reflects a wider shift towards sustainable investing and aligning portfolios with values and socially responsible causes. With the ongoing policy push towards combatting climate change, it's expected that the demand for ESG-linked structured products will continue to rise in the future.
Digital Platforms for Strükis
Another trend, in Switzerland in particular, has been the growing use of digital platforms for the distribution and trading of structured products with the exchange traded underlying assets - Stükis. Among the corporation making that move towards digitalization are big names such as Vontobel, Julius Baer, and Leonteq. These platforms allow investors to easily access a wide range of structured products and can also provide tools for analyzing and comparing different products. Bloomberg has noticed that the shift towards digital platforms was dramatically accelerated by COVID, and continues due to lower fees, more transparency, and more data compared to interacting with an asset manager directly. [3]
From the issuer perspective, technological solutions are also moving forward and we already see building of such platforms being offered as a service. Not only it allows for easier management of the life-cycle of your investment products, but it also streamlines product creation. “Imagine you would like to invest in tech companies, but want to exclude a certain market, or only focus on a number of specific topics. This has now become a matter of a few mouse clicks,” says Cinzia Zandonella, Derivatives Sales specialist at Julius Baer. [4]
The trend towards customization within major market players dealing in traditional assets is a strong signal of the promise of structured products. As investors seek out alternative investment opportunities that offer unconventional strategies and distinctive themes, thematic investments are becoming increasingly popular. This is fuelling a growing interest in structured products, which are poised to benefit from these two key market drivers - customization and thematic investments - in 2023.
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The financial market is evolving and being shaped by several key factors, including digitization, sustainability, urbanization, and demographic and social changes. These megatrends are having a significant impact on how financial products are designed and marketed. Structured products, in particular, are well-positioned to take advantage of these changes. Their focus on flexible and tailored approach is becoming increasingly important as investors look for ways to achieve atypical results and protect their wealth in an ever-changing financial landscape. With their ability to adapt and evolve to meet the demands of the market, structured products are poised for growth and expansion in the years to come.
Digital Waves supports you in the conception, issuance, and, if necessary, marketing and advise on distribution of investment products. Our setup allows you to securitise almost any kind of investment strategies and underlying assets from listed stocks, bonds, derivatives, private equity, venture capital, commodities, or private debt to real estate, digital assets, or even art. Don’t hesitate to reach out to use at info@digitalwaves.com to learn about our white-labelling platform.
What are structured products?
Structured products are securities that combine multiple assets and derivatives and are tailored to the needs of a specific investor. [1] These products have become increasingly popular in recent years, as they offer asset managers and banks an instrument to customize their investments to meet the specific goals and risk tolerance of their clients. For example, if an investor is looking for a product with an ESG component focused on reducing carbon emissions, Digital Waves' Rainforest CO2 Reduction CLN is a good example. This product allows to invest directly into the purchase of rainforest in Paraguay, making it a tangible contribution to the reduction of the global carbon emissions. And this use case is just one of a wide range of investment opportunities with structured products that is virtually unlimited, from sustainability projects to the private equity of leading tech companies.
In the context of Swiss market, it is important to draw the distinction between the structured products and Struki, type of structured products specific to Switzerland. Strükis typically have listed liquid underlying assets, often 2-3 stocks such as of Nestle, Roche and UBS, with the bank offering a variety of structured product options with fixed term and different features such as guaranteed coupons and barriers. The availability of platforms created by esteemed Swiss banks such as Vontobel and Julius Baer, as well as specialized marketplaces for structured products, such as Leonteq, offers asset managers an efficient means of exploring the different combinations of underlying assets, features, and terms. With just a few clicks, these platforms enable asset managers to create a custom-fit product, tailored to meet the unique needs of their clients.
Structured products in their wider sense offer a range of investment opportunities in the alternative assets space. Strükis, which also translate to structured products from Swiss German, have a more focused scope and a wide range of underlying combinations but a more limited choice of underlying assets themselves.
In this article, we will explore the trends that are affecting both domestic Swiss market of structured products with the focus on the digital platforms development for Strükis and the global trends such as sustainability, thematic investments, and digital assets.
Structured Products and Digital Assets
According to the SRP Crypto Report 2022, structured products are essential for facilitating client adoption of an emerging asset class such as digital assets. [2] Choosing a structured product for entering the crypto market can provide exposure to a wide range of digital assets, such as Bitcoin, Ethereum, and other cryptocurrencies, in a single investment. This can be beneficial for investors who want to diversify their portfolio across multiple digital assets without having to purchase and manage them separately.
In September 2022, there were over 2500 structured products linked to cryptocurrencies. [2] Initially most digital asset structured products were simple dual-currency investments, but they have been growing in complexity more rapidly than any other asset class. This surge in more diversified products, in terms of range of digital asset and investment strategies, is primarily driven by the investor demand to protect themselves against the volatilities of the crypto market. In addition to increasing sophistication of investment strategies and diversified digital assets, we will also see thematic investment products thematic investments such as DeFi and Metaverse indexes continue to grow in their complexity and innovativeness. Over the recent year thematic investment market size have surged reaching $806 billion in assets under management at the end of 2021. [6]
ESG
According to LGT, ESG (environmental, social and governance) trend is the leading driver of the growth in thematic investments. Its global assets on track are set to exceed $50 trillion by 2025, according to Bloomberg Intelligence. Structured products are directly reflecting the trend, being one of the most flexible tools in thematic investing.
Global structured note issuance saw a significant increase of 53% last year, driven in part by investors seeking customized exposure to environmental, social, and governance (ESG) considerations. [5] ESG-linked structured products issuance has seen a rapid rise in recent years, growing from zero to around $10-15 billion. The reason behind this sharp increase is the rising interest of investors in customization of their exposure to ESG factors. This trend reflects a wider shift towards sustainable investing and aligning portfolios with values and socially responsible causes. With the ongoing policy push towards combatting climate change, it's expected that the demand for ESG-linked structured products will continue to rise in the future.
Digital Platforms for Strükis
Another trend, in Switzerland in particular, has been the growing use of digital platforms for the distribution and trading of structured products with the exchange traded underlying assets - Stükis. Among the corporation making that move towards digitalization are big names such as Vontobel, Julius Baer, and Leonteq. These platforms allow investors to easily access a wide range of structured products and can also provide tools for analyzing and comparing different products. Bloomberg has noticed that the shift towards digital platforms was dramatically accelerated by COVID, and continues due to lower fees, more transparency, and more data compared to interacting with an asset manager directly. [3]
From the issuer perspective, technological solutions are also moving forward and we already see building of such platforms being offered as a service. Not only it allows for easier management of the life-cycle of your investment products, but it also streamlines product creation. “Imagine you would like to invest in tech companies, but want to exclude a certain market, or only focus on a number of specific topics. This has now become a matter of a few mouse clicks,” says Cinzia Zandonella, Derivatives Sales specialist at Julius Baer. [4]
The trend towards customization within major market players dealing in traditional assets is a strong signal of the promise of structured products. As investors seek out alternative investment opportunities that offer unconventional strategies and distinctive themes, thematic investments are becoming increasingly popular. This is fuelling a growing interest in structured products, which are poised to benefit from these two key market drivers - customization and thematic investments - in 2023.
---
The financial market is evolving and being shaped by several key factors, including digitization, sustainability, urbanization, and demographic and social changes. These megatrends are having a significant impact on how financial products are designed and marketed. Structured products, in particular, are well-positioned to take advantage of these changes. Their focus on flexible and tailored approach is becoming increasingly important as investors look for ways to achieve atypical results and protect their wealth in an ever-changing financial landscape. With their ability to adapt and evolve to meet the demands of the market, structured products are poised for growth and expansion in the years to come.
Digital Waves supports you in the conception, issuance, and, if necessary, marketing and advise on distribution of investment products. Our setup allows you to securitise almost any kind of investment strategies and underlying assets from listed stocks, bonds, derivatives, private equity, venture capital, commodities, or private debt to real estate, digital assets, or even art. Don’t hesitate to reach out to use at info@digitalwaves.com to learn about our white-labelling platform.