Considering the disruptive influences of high inflation, high interest rates, increasing geopolitical tensions and a shift from monetary easing to tightening, numerous analysts believe that the markets may turn bearish soon or, at best, be choppy and move sideways for some time.
An important strategy to protect investors will be to diversify their portfolios. In doing so, investors should consider structured offshore investment products. These investment products offer investors significant dollar-based returns even when the markets are flat or slightly positive while avoiding a major increase in portfolio risk through the conditional capital protection offered by these investments.
Below is a practical example of a classic 5-year structured product:
In this investment, if after the first 12 months, the performance of the Nasdaq is flat or higher than its level at the beginning of the investment, the investor will generate a guaranteed return of, for example, 15% in dollars. As an illustration, if the Nasdaq is up 0.5% after 12 months, the investor receives a 15% return and their original capital back.
The 15% return, if not triggered in a given year, keeps accumulating. For example, if the return is triggered for the first time in the 3rd year of the investment, the investor will receive a 45% return (15% x 3). This return accumulation continues until the end of the 5th year.
If the return is not triggered by the end of the 5th year because the Nasdaq has been negative compared to its starting level during the investment term and isn’t flat or positive at the end, the investor will receive 100% of their investment amount back. This is provided that the Nasdaq has not fallen by more than a predetermined amount (e.g. 35%) from its starting level at the beginning of the investment term. If the Nasdaq does underperform by, as an example, 40%, the investor will lose 40% of their original investment amount.
A vital benefit of this structured product is that investors will still generate a significant return if analysts are correct and the markets move sideways. If markets experience a decline followed by recovery after a few years, investors will reap the rewards for their patience because of the return accumulating each year.
Conversely, if markets drop by no more than 35% in 5 years, the investors will receive their original capital back.
Because it’s impossible to predict the future market trajectory or the impact of tight monetary policies on potential downturns, structured products should be considered for investors seeking to incorporate an element into their portfolios that mitigates downside risks and enhances the risk/return ratios.
Jaltech has launched two structured products that provide investors with exposure to developed markets equities and to large-cap US & European technology companies, both of which pay a return of 15% p.a. if triggered and include conditional capital protection.