Know-how

Structured products are financial products that combine conventional investment classes such as shares, bonds, currencies or commodities with derivative instruments such as forward transactions. The advantage of structured products lies in their flexibility: a product can be structured for every market expectation, whether rising, falling or stagnant. In order for the corresponding return to be realised, the expected market development must actually take place. With structured products, an investment solution can be found to suit every risk profile.

Despite their great flexibility, however, structured products should not be seen as a magic solution, but as a complement to conventional investments. The hard and fast rule of investing – higher returns can only be attained by assuming higher risks – holds equally true for structured products.

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Capital protection products protect investors against falling prices. As a rule, capital protection ranges from 90 to 100 percent of the nominal value applicable on product expiry. As with bonds, prices can fluctuate throughout the structured product’s life. Generally, the upside potential of capital protection products is lower than that of other products and may even be limited (capped capital protection products). Their earning potential may nevertheless be significant without foregoing capital protection. (Source: Swiss Structured Products Association)

Capital Protection Certificate with Participation

Market expectation

  • Rising underlying
  • Rising volatility
  • Sharply falling underlying possible

Characteristics

  • Minimum redemption at expiry equivalent to the capital protection
  • Capital protection is defined as a percentage of the nominal (e.g. 100%)
  • Capital protection refers to the nominal only, and not to the purchase price
  • Value of the product may fall below its capital protection during the lifetime
  • Participation in underlying price increase above the strike
  • Any payouts attributable to the underlying are used in favour of the strategy

Product components

  • Client buys a bond
  • Client buys a call option (call long)

Convertible Certificate

Market expectation

  • Sharply rising underlying
  • Rising volatility
  • Sharply falling underlying possible

Characteristics

  • Minimum redemption at expiry equivalent to the capital protection
  • Capital protection is defined as a percentage of the nominal (e.g. 100%)
  • Capital protection refers to the nominal only, and not to the purchase price
  • Value of the product may fall below its capital protection during the lifetime
  • Participation in underlying price increase above the strike (conversion price)
  • Any payouts attributable to the underlying are used in favour of the strategy
  • Coupon payment possible

Barrier Capital Protection Certificate

Market expectation

  • Rising underlying
  • Sharply falling underlying possible

Characteristics

  • Minimum redemption at expiry equivalent to the capital protection
  • Capital protection is defined as a percentage of the nominal (e.g. 100%)
  • Capital protection refers to the nominal only, and not to the purchase price
  • Value of the product may fall below its capital protection during the lifetime
  • Participation in underlying price increase above the strike up to the barrier
  • Any payouts attributable to the underlying are used in favour of the strategy
  • Possibility of rebate payment once barrier is breached
  • Limited upside potential (cap)

Capital Protection Certificate with Coupon

Market expectation

  • Rising underlying
  • Sharply falling underlying possible

Characteristics

  • Minimum redemption at expiry equivalent to the capital protection
  • Capital protection is defined as a percentage of the nominal (e.g. 100%)
  • Capital protection refers to the nominal only, and not to the purchase price
  • Value of the product may fall below its capital protection during the lifetime
  • Any payouts attributable to the underlying are used in favour of the strategy
  • The coupon amount is dependent on the development of the underlying
  • Periodic coupon payment is expected
  • Limited upside potential (cap)
Yield enhancement products are suitable for markets trending sideways. With these products, investors forego participation in positive developments of the underlying above a threshold called the "cap". In return for surrendering some upside potential, the investor is given a coupon, called a reverse convertible, or a discount on the underlying (discount certificate). If the underlying declines sharply and falls below the cap or the barrier (barrier reverse convertible), the investor participates fully in the loss as he would with a direct investment in the underlying. But since the coupon is redeemed in any case, yield enhancement products are often referred to as "interest-bearing shares". The coupon yield of products with several underlyings goes up – as does risk –because none of the underlyings is allowed to fall below the threshold. (Source: Swiss Structured Products Association).

Discount Certificate

Market expectation

  • Underlying moving sideways or slightly rising
  • Falling volatility

Characteristics

  • Should the underlying close below the strike on expiry, the underlying and/or a cash amount is redeemed
  • Discount Certificates enable investors to acquire the underlying at a lower price
  • Smaller risk of loss than with direct investment in the underlying
  • Higher discounts can be achieved at greater risk if the product is based on multiple underlyings (multi-asset)
  • Any payouts attributable to the underlying are used in favour of the strategy
  • Limited upside potential (cap)

Product components

  • Client buys a bond
  • Client sells a put option (put short)

Barrier Discount Certificate

Market expectation

  • Underlying moving sideways or slightly rising
  • Falling volatility
  • Underlying will not breach barrier during product lifetime

Characteristics

  • The maximum redemption amount (Cap) is paid out if the barrier is never breached
  • Discount Certificates enable investors to acquire the underlying at a lower price
  • If the barrier is breached the product becomes a Discount Certificate
  • Since, provided the barrier has not been breached, the nominal is repaid on expiry, the probability of maximum repayment is higher but the discount is smaller
  • Smaller risk of loss than with direct investment in the underlying
  • Larger discounts or a lower barrier can be achieved at greater risk if the product is based on multiple underlyings (multi-asset)
  • Any payouts attributable to the underlying are used in favour of the strategy
  • Limited upside potential (cap)

Product components

  • Client buys a bond
  • Larger discounts or a lower barrier can be achieved at greater risk if the product is based on multiple underlyings (multi-asset)

Reverse Convertible

Market expectation

  • Underlying moving sideways or slightly rising
  • Falling volatility

Characteristics

  • Should the underlying close below the strike on expiry, the underlying and/or a cash amount is redeemed
  • Should the underlying close above the Strike at expiry, the nominal plus the coupon is paid at redemption
  • The coupon is paid regardless of the underlying development
  • Smaller risk of loss than with direct investment in the underlying
  • Larger coupons can be achieved at a greater risk if the product is based on multiple underlyings (multi-asset)
  • Any payouts attributable to the underlying are used in favour of the strategy
  • Limited upside potential (cap)

Product components

  • Client buys a bond
  • Client sells a put option (put short)

Barrier Reverse Convertible

Market expectation

  • Underlying moving sideways or slightly rising
  • Falling volatility

Characteristics

  • Should the barrier never be breached, the nominal plus coupon is paid at redemption
  • If the barrier is breached the product changes into a Reverse Convertible
  • Since, provided the barrier has not been breached, the nominal is repaid on expiry, the probability of maximum repayment is higher but the coupon is smaller
  • If the barrier is breached the product changes into a Reverse Convertible
  • The coupon is paid regardless of the development of the underlying
  • Larger coupon payments or lower barriers can be achieved at a greater risk if the product is based on multiple underlyings (multi-asset)
  • Any payouts attributable to the underlying are used in favour of the strategy
  • Limited upside potential (cap)

Product components

  • Client buys a bond
  • Client sells a Down-and-In put option (Down-and-In put short)

Express Certificate

Market expectation

  • Underlying moving sideways or slightly rising
  • Underlying will not breach barrier during product lifetime

Characteristics

  • Should the underlying trade above the Strike on the observation date, an early redemption consisting of nominal plus an additional coupon amount is paid
  • Offers the possibility of an early redemption combined with an attractive yield opportunity
  • Smaller risk of loss than with direct investment in the underlying
  • Any payouts attributable to the underlying are used in favour of the strategy
  • Limited upside potential (cap)
In principle, participation products share fully in the underlying’s price movements, with no upside or downside limitations. Some products participate equally in such price movements (tracker certificates); others come with additional mechanisms. For instance, the participation rate of outperformance certificates increases beyond a previously specified threshold (strike). In turn, the investor foregoes dividends in favour of the outperformance mechanism. Bonus certificates pay a bonus even if the underlying’s price fails to increase but moves sideways. On the other hand, there are no dividend payments to the investor because issuers use them to finance the bonus mechanism.

Tracker Certificate

Market expectation

  • Tracker Certificate (Bull): Rising underlying
  • Tracker Certificate (Bear): Falling underlying

Characteristics

  • Unlimited participation in development of the underlying
  • Reflects underlying price moves 1:1 (adjusted by conversion ratio and any related fees)
  • Risk comparable to direct investment in the underlying
  • Fees generally in the form of management fees or through the retention of payouts attributable to the underlying during the lifetime of the product

Outperformance Certificate

Market expectation

  • Rising underlying
  • Rising volatility

Characteristics

  • Unlimited participation in development of the underlying
  • Disproportionate participation (outperformance) in positive performance above the strike
  • Reflects underlying price moves 1:1 when below the strike
  • Risk comparable to direct investment in the underlying
  • Any payouts attributable to the underlying are used in favour of the strategy

Bonus Certificate

Market expectation

  • Underlying moving sideways or rising
  • Underlying will not breach barrier during product lifetime

Characteristics

  • Unlimited participation in development of the underlying
  • Minimum redemption is equal to the nominal provided the barrier has not been breached
  • Smaller risk of loss than with direct investment in the underlying
  • Larger Bonus payments or lower barriers can be achieved at a greater risk if the product is based on multiple underlyings (multi-asset)
  • Any payouts attributable to the underlying are used in favour of the strategy

Outperformance Bonus Certificate

Market expectation

  • Rising underlying
  • Underlying will not breach barrier during product lifetime

Characteristics

  • Unlimited participation in development of the underlying
  • Minimum redemption is equal to the nominal provided the barrier has not been breached
  • Disproportionate participation (outperformance) in positive performance above the strike
  • If the barrier is breached the product changes into a Outperformance Certificate
  • Smaller risk of loss than with direct investment in the underlying
  • Any payouts attributable to the underlying are used in favour of the strategy

Twin-Win Certificate

Market expectation

  • Rising or slightly falling underlying
  • Underlying will not breach barrier during product lifetime

Characteristics

  • Unlimited participation in development of the underlying
  • Minimum redemption is equal to the nominal provided the barrier has not been breached
  • Profits possible with rising and falling underlying
  • Falling underlying price converts into profit up to the barrier
  • If the barrier is breached the product changes into a Tracker Certificate
  • Any payouts attributable to the underlying are used in favour of the strategy