Even with convictions about the long-term potential of equities, it is difficult to invest when the stock market is rocking all over the place. This is why structured products, formerly called formula funds, appeal to a large number of savers. “With these investments, you will seek part of the performance of a market without assuming all the risks”, explains Jean-Baptiste Roudillon, director of savings at LCL.
These products nevertheless remain quite complex because they are defined by several factors. The lifespan is known in advance: it varies from three or four years to more than ten years sometimes, even if early repayments can be planned when certain financial scenarios occur. Another feature is that your investment is guaranteed at maturity or protected up to a certain level of stock market decline. Finally, the remuneration is planned according to the behavior of an “underlying”, which can be, for example, an index or a basket of securities. “By investing in a structured product, we are betting on the behavior of its underlying”, insists Guillaume Garabedian, sector specialist at Meeschaert Gestion Privée.
Very often, the investor focuses on this promise, forgetting to weigh up the other elements of the formula. However, the more an investment offers a high return, the more risk it entails. It is therefore necessary to study the different parameters before choosing. Starting with the profile of its issuer because, in practice, it is a debt security issued by a bank – a point to bear in mind as the sector suffers. The bankruptcy of the institution – although unlikely – would result in a deadweight loss for the saver. It is better to favor offers from big French names such as Société Générale, BNP Paribas, Crédit Agricole or CIC. The lifespan must also be weighed because you have to be able to immobilize your savings over the maximum duration provided for contractually.
“Be Vigilant”
Capital protection is another key criterion. Most of the time, this is protected up to a drop of 40 to 60%. In the event of a deeper collapse, you take the full loss. “For a few months, we have been able to recreate products with a 100% capital guarantee at maturity, offering a return of 3 to 5% depending on the longevity of the support”, underlines Jean-Charles Crucis, director at Adequity. However, this advantage is only valid when the support expires. If you want to recover your savings sooner, you can do so, but it will be at the market price, so at a more or less advantageous level depending on the context.
Also study the underlying: favor indices, which are better diversified, rather than baskets of securities. And make sure it’s current indexes such as the CAC 40 or the Eurostoxx 50, whose evolution you can follow easily. “Be vigilant to fully understand the underlying that is offered to you”, points out Jean-Baptiste Roudillon.
Finally, study well on the market scenario integrated in the formula. “You have to assess the probability of seeing the gain materialize,” advises Guillaume Garabedian. Thus, many structured products provide for a gain when the underlying index shows an increase compared to the launch date of the investment. But some allow you to receive this remuneration even if it drops, up to -10% for example.
To limit the risks, the best solution still consists in diversifying its investments on several supports, emanating from distinct transmitters and over different durations. In other words: don’t put all your eggs in one basket…