Exploring alternative strategies with structured products
Alternative strategies to preserve and grow your wealth can sometimes be viewed as risky. That certainly can be the case if you adopt a more aggressive approach in your portfolio planning, although this is seldom the right approach for your everyday investor.
In the main, alternative investment strategies make use of assets and instruments that fall outside the traditional investment categories like listed stocks, bonds, and cash. They therefore tend to be viewed as more complex and, possibly, risky assets.
But that is not always the case across the board. Take, for example, real estate investments, which fall into the alternative asset category but are not always considered a high-risk investment. Yes, you could be at risk if you haven’t chosen well and bought in a bad neighbourhood, but the risk is generally far lower than many other alternative assets like hedge funds, art, currencies, commodities and crypto assets.
The benefits of alternative assets
Astute investors often use alternative assets to diversify their portfolios by holding assets that tend to grow in value when traditional assets are in decline.
Generally speaking, alternative assets are useful because:
- you can diversify your portfolio beyond traditional asset classes like stocks and bonds, potentially reducing overall portfolio risk
- alternative assets often perform independently or differently from the broader market, providing potential downside protection
- alternative strategies can offer attractive risk-adjusted returns by capitalising on unique market inefficiencies or specialised investment opportunities
- alternative assets can act as a hedge against market downturns
- alternative strategies allow you to align your investment objectives, risk tolerance, and time horizons with suitable alternative assets.
The underlying philosophy of all alternative strategies is to look for ways to grow your capital at a time that traditional assets are underperforming. The key to employing this strategy successfully is to allocate the right amount of your portfolio to these assets.
What that amount is will depend on your particular circumstances, but it will almost certainly never be 100% of your portfolio. The idea is not to go all in on alternatives, but rather to use them to balance out your portfolio by growing in value when traditional assets are not.
Low-risk alternative assets
Fortunately, there is good news for less sophisticated investors who recognise the importance of diversifying risk: not all alternative strategies entail high levels of risk.
As mentioned, real estate is may not be high-risk if you’ve done your due diligence and the property grows in value over time.
Another worthwhile option to consider is a structured product. These are instruments created around a specific opportunity or built to buffer your deposit against negative market moves.
Standard Bank specialises in low to medium risk structured products for international clients that offer some degree of capital preservation while tapping into possible growth opportunities. The aim is to counter the negative effects of inflation without relying on traditional assets like list equities.
That being said, equities do still feature in the make-up of our structured products.
Take, for example, our Defined Return Structured Product. Even though it’s defined as a low to medium risk deposit, it tracks the performance of a specific S&P index. As is commonly known, markets are highly unpredictable and can suffer bouts of volatility when prices either rise or fall - sometimes precipitously.
What makes the Defined Return Structured Product unique is that you’ll receive a fixed return on your deposit if markets rise, and you’ll get your original deposit back if markets fall over the four year deposit period.
In this instance, your potential return is capped at a pre-determined maximum. Which is not the case with our Deposit PLUS Structured Products that pays you the total growth achieved, multiplied by a participation rate.
Although the deposit term is five years, your return is calculated on the growth in the market index between the start date and the average closing price over the final 18 months of the deposit term.
In each case, the market index is determined by the currency used for your deposit. For instance, the Defined Return product tracks the S&P United Kingdom for pound sterling deposits, while US dollar deposits track the S&P 500 Index and Australian dollar deposits track the S&P/ASX 200 Index.
These pre-packaged offerings help to remove the guesswork from your planning, so you can enjoy the benefits without using complex strategies or structures. And with deposit terms typically ranging between four and five years, you’re able to benefit from long-term trends while riding out short-term shocks.
It’s important to remember that no one part of your financial plan should be seen in isolation. Defensive strategies like alternative assets must work hand in glove with your growth assets like listed equities. Structured products allow you to achieve some of that balance without adding complexity to your portfolio.
*Capital protection refers to the Product’s design to repay your original deposit in full, in the deposit currency, providing you retain your deposit to the relevant Maturity Date.
This article is for topical interest and does not constitute an invitation to buy or the solicitation of an offer to sell securities or to accept deposits or to provide any other products or services in any jurisdiction, to any person to whom it is unlawful to make such an offer or solicitation, nor should it be construed to constitute any investment advice. Full terms and conditions linked to discussed products are detailed in the relevant brochure, along with the associated benefits and risks. Legislation or regulations in jurisdictions relevant to you may prohibit you from entering into certain transactions with us and we strongly recommend that you contact your financial or legal adviser in this regard. It is your responsibility for informing yourself about and complying with such restrictions.
Melville Douglas is a registered business name of the Investment Services Division of Standard Bank Jersey Limited which is regulated by the Jersey Financial Services Commission. Standard Bank Jersey Limited is registered in Jersey No. 12999 and is a wholly owned subsidiary of Standard Bank Offshore Group Limited whose registered office is Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ. Tel +44 1534 881188, Fax +44 1534 881399,