Structured products are winning more fans in the U.S. Sales of the hybrid securities grew 33 percent in 2006, to $64 billion, according to Incapital. And demand is almost unanimously expected to increase over the next one to two years, according to a survey by the Structured Products Association (SPA) and Greenwich Associates.
Incapital attributes the growing appetite for structured products to better pricing, improved liquidity and new features. But what investors seem to like best about the instruments is the principal protection they offer, say two-thirds of respondents to the SPA survey. Structured products are typically made up of a basket of investments that combines the upside potential of equity with the downside protections of fixed income (bonds, CDs, equities, commodities, currencies, real estate trusts, derivative products, etc.).
U.S. issuance still lags far behind that of Europe; the SPA says the European market has an advantage over the U.S. market because of its “flexible regulatory regime.” But more and more U.S. financial services companies are taking an interest. For example, Linsco Private Ledger, the San Diego-based independent broker/ dealer, as well as Schwab and Fidelity, have all recently opened their investment platforms to structured products.
Incapital has just launched a Web site for finance professionals and individual investors detailing the risks and features of structured products, with a list of offerings by over 25 structured note issuers in the U.S. market today: www.structuredinvestments.com