Traditionally, when we speak of ‘banking’, we automatically think of products like savings accounts, loan facilities and debit/ credit cards. From the days when banking used to revolve around the basics to the now increasingly popular digital banking and e-wallet experiences, the banking landscape has drastically changed. The recent pandemic has further catalysed this ‘revolution’ by increasing the need for more secure and sustainable investment offerings. Moving away from the traditional savings accounts and deposits, we now have ‘Structured Products’ that are tied to international financial markets and offer capital protection and a lucrative return on investment by circumventing dynamic market fluctuations.
1. What is a structured product?
Structured Products can be loosely defined as an investment product offering a return that is linked to an underlying asset with pre-defined features (maturity date, coupon date, capital protection level, etc). The underlying asset(s) may include market indices, individual or baskets of stocks, bonds, and commodities, funds, currencies, interest rates or a mix of all of these. Structured products offer the potential of an attractive return on investment subject to the correctness of the predictions regarding the underlying asset(s).
2. What are the benefits of a structured product?
(a) Capital Protection
COVID-19 created an uproar on international financial markets. Investors who were directly exposed to stocks, bonds, indices, funds and the like, faced the brunt of it and lost around 30% on average of their investment value, prompting them to think of how to better protect their capital. A structured deposit offers a protection of the invested capital against the volatility of markets. Think of it as an insurance policy tied to your investment.
(b) Tailored Solutions
To match your financial needs, risk appetite and investment exposure level, we propose tailored investment solutions that would best meet your requirements. Anchored on our belief to embed sustainability in our business practices, we craft financial solutions that would maximise your return on investment sustainably over a long period of time.
(c) No Fees
Investing in a 4-Star or 5-Star accredited fund directly is expensive in terms of entry costs and yearly management fees. However, there are no fees applicable when you invest in these funds through a structured product.
For example, if a fund has a one-off entry fee of 2% and an annual management fee of 1%, the total cost of investment over a period of 5 years would be 7% (2% + (1% X 5)). In addition, the investor would be taking full capital risk if there is a negative fund performance; this means that, at maturity, the investor might neither earn any return on investment nor receive back the full amount of capital invested at the outset.
When you invest in a structured deposit, you benefit from the performance of the fund without having to pay any such entry and/or management fees. Additionally, with a structured product, you can choose the extent of your participation at a defined capital protection level. This means that you can choose the degree to which you wish to protect your invested capital. If you wish to learn more about the mechanics of how this works, please get in touch with our Structuring Desk Team, whose contact details have been shared further down.
3. Is a structured product a risky investment?
Structured products are tailormade investment solutions that can be adapted to the needs of each investor. For example, it can be tailored according to your investment strategy, your risk/return profile, the maturity or the amount invested, amongst others.
As highlighted above, a structured product takes into account your risk/return profile as an investor. This means that if you are an aggressive investor or someone with a higher risk tolerance level and will be more willing to risk the capital invested, we will tailor an offering that best meets your risk appetite for the possibility of better returns. On the other hand, if you are a conservative investor, that is, you are an individual with a lower risk tolerance level and prefer to ensure capital preservation, we will design an offering for you that is tied to the least risks possible in meeting your requirements.
4. How do I know what structured product I need?
Every customer is unique and has specific needs and different risk appetites. As a customer, what will work for you might not be the ideal solution for someone else and vice versa. This is why, before offering you on any structured investment solution, we commit ourselves to understand your investment needs and your risk/return expectations. Then, we analyse and propose the ideal investment solution that we believe will best suit your needs.
Before you decide on whether a structured product is the best one for you, it’s important that you fully understand the terms and conditions, and the risks involved in regards to your objectives, level of experience, financial and operational resources, and any other relevant determining factors. As an added layer of protection, the Bank strongly recommends an independent consultation with tax, legal and financial advisors to have a second professional advice before signing up for a structured product.
5. What are the structured products that AfrAsia Bank offers?
AfrAsia Bank’s Structuring Desk crafts structured products adapted to the needs and financial objectives of our clients. Leveraging the emerging opportunity within the global battery market, we recently tailored the Snowball Autocall on Worst-off Nickel, Copper and Aluminium – you will find more details here.
Following the recent pandemic, more asset owners and asset managers are increasingly aligning their investment processes to ESG (Environmental, Social and Governance) principles for smarter and long-term investments. According to a study by OnePlanetCapital - a new sustainability-driven investment house that focuses on climate change - 9% of investors currently hold ESG investments and the market is set to double this year as 12% of investors who do not currently invest in ESG plans will move to ESG related funds in 2021 and 17% in 2022.
Leveraging this opportunity, AfrAsia Bank crafted the Blackrock ESG Multi-Asset Fund VT 8% structured product.
6. What is the Blackrock ESG Multi-Asset Fund VT 8%?
The Blackrock ESG Multi-Asset Fund VT 8% is a structured product that is anchored on ESG principles to help investors integrate non-financial sustainability considerations into their investment process.
The company Blackrock is by far the world’s largest asset manager with over USD 9 trillion worth of assets under management (June 2021) and this fund has achieved a 5-star rating from the internationally-acclaimed Morningstar rating model and an A rating from MSCI ESG Fund Rating. The proposed structure allows investors to participate in the positive return of the BlackRock ESG Multi-Asset Fund Class A2 EUR with 8% VT with a given capital protection level at maturity.
As at date of publication, we have already secured investments of over USD 21.9m from institutional and private investors, which portrays the belief of our clients in this product’s performance. Accordingly, from a ‘Back-testing’ effected on this structured product between 16 July 2015 to 25 March 2021, the product has constantly displayed resilience in delivering an average positive return, even braving the odds of the COVID market crash of 2020.
If you wish to have more information on this particular product, please get in touch with our Structuring Desk Team as per below.
7. Can I have my money back before the deposit matures?
Any Structured Product is designed to run for the full term. In case of an emergency or urgent need for money, you may submit a written request for your deposit withdrawal and the closing of your structured product before the maturity date. We shall consider your request and acceding to same will be at our absolute discretion. Please be aware that, in the event that your deposit is repaid before the relevant Repayment Date, the amount you will receive back may be less than your original deposit owing to the deposit value being affected by factors including for how long you’ve held the Structured Product, the performance of the underlying, prevailing interest rates and market conditions.
8. How do I choose the right structured product for me?
Choosing the right structured product for you depends on an array of factors such as your financial objectives, your risk appetite, the performance of a structured deposit, the capital protection level offered amongst others.
To help you choose the ideal solution for you, our Structuring Desk will gauge your financial requirements, help you understand the ins and outs of the different structured products we have and recommend the most ideal solution for you.
If you want to know more about Structured products or sign up for one best suited to your needs, please get in touch with our Structuring Desk Team.