Structured Products

Structured products are investments that provide the potential for investors to earn a return higher than traditional deposits. Structured products can provide returns that are linked to the performance of an underlying benchmark, such as equities, commodities, interest rates, foreign exchange rates, etc. The exposure to the underlying asset can be through individual securities, a basket of securities or market indices.

In comparison, a traditional investment in shares provides an investor the opportunity to earn an income through dividend payments and capital growth through a rise in the share price. If the view was that equity markets were to remain flat for the next 3 years, a structured product can be designed to perform when the underlying asset price was to remain flat or even fall slightly. This can assist an investor achieve greater portfolio diversification, as this part of the portfolio will perform well in certain market conditions. In the case of a strong bullish market, a structured product may under perform a direct investment in the underlying asset.

Most structured products offer capital protection * when held until maturity. As the value of capital protection * is determined by the creditworthiness of the issuer, it is important to ensure that the issuer is of sufficient credit quality. Please note that while capital protected structured products protects a portion (up to 100%) of your invested capital, the returns are not guaranteed.

HSBC continually reviews investment strategies from around the world. We choose the best of these strategies based on the risk / reward trade-off and our research on the future expectations of the underlying asset. Structured products are then specifically tailored to best serve the needs of our clients and take advantage of certain market conditions.

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Adventurous or conservative? Take a look at structured product investment.

Structured Product Suitability

Structured product investment suits a wide range of investor types and needs, for example:

• Traditional deposit investors looking for a way to enhance their returns through exposure to financial markets, but are unwilling to put their capital at risk should the market not perform as expected.
• Growth investors looking to increase the defensive part of their portfolio to provide protection in times of market decline.
• Investors looking for an investment that performs differently from traditional securities such as shares and property.

To determine whether a structured product may suit you, you may wish to consider the following questions:

• Are you seeking to protect your capital*?
• Are you able to leave your money invested for the entire term of the product?
• Do you have sufficient funds available in case of unforseen circumstances?
• Do you want your returns linked to the performance of a specific market (e.g. equity, commodity, etc)?
• Do you want the potential to earn a return higher than you could achieve from a deposit account?
• Can you afford to live without the regular income that you would receive from the investment?

If you answered yes to one or more of these questions, then a structured product may be something that is of benefit to you.

Before making a decision to invest in a structured product, we welcome you to discuss this with one of our Wealth Management staff. They will review your personal circumstances, risk tolerance, financial needs and objectives in order to determine whether a structured product would best meet your needs. As structured products tend to be quite complex, it is important for you to understand the product you are investing in, including its risks.

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Direct retail investors can buy structured products now.

Advantages

• Access to alternative assets and markets - Depending on the underlying asset, structured products give you the ability to access investment opportunities from all around the world, through returns linked to the performance of one underlying asset or a basket of assets.
• Capital protection* - In times of adverse market performance, the capital protection* ensures that you will receive your initial investment amount at maturity.
• Reducing risk through diversification - Investing in structured products can achieve diversification in two ways:
• 1. Exposure to asset classe, investment strategies and markets that a retail investor would not normally be able to access.
• 2. By linking to assets that don't perform the same way as the assets you may already hold.
• Clear investment objectives - The objectives of the investment are usually determined up-front and locked-in for the life of the investment. This provides a level of certainty of how an investment will perform under particular market circumstances. This is helpful when aiming to take advantage of a particular market scenario.
• Potential for enhanced returns - These returns can be delivered in the form of income and/or capital growth. Depending on the way the investment is structured, it also has the ability to outperform traditional investments in certain market conditions.

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Structured products from HSBC bank. Explore both sides.

Pros and Cons

For some products, the structure may be quite complex including many factors ranging from tiered rates of return, to the ability for the investment to mature early if the underlying rises or falls below a particular level. It is important to thoroughly understand how the investment performs under various market situations, including the risks.

The terms of the structured product, which include the degree of capital protection* and the risk and return characteristics, are both fixed and transparent. Unlike a managed fund, investments in most structured products are not exposed to a particular manager's style or ability, unless of course, the underlying is a managed fund.

Investing in structured products comes down to a trade-off between an investor's desire for higher returns and their attitude towards risk. Capital preservation is an attractive element of structured products, but it does reduce the ability to benefit from the higher returns that can be made in a strongly rising market, such as shares and property. The cost of capital protection* may limit the upside returns, but it also limits the downside to the repayment of the initial investment amount at maturity.

Investments can be designed to provide capital growth, income or a combination of both. Structured products can also be designed to provide positive returns even if the direct investments in a market would have produced a loss and could also deliver income returns greater than deposit products or accounts. These outcomes can be provided with the comfort of capital protection* as long as the investment is held until maturity.

Structured products are designed to be held until maturity for the capital protection* to apply. If the investor requires this money at short notice, then the redemption of the investment could involve a significant capital loss and may also involve some early termination charges. Due to the costs and time involved with redeeming some structured products, some issuers also impose additional restrictions, such as monthly redemptions. In some situations it may take 2 to 3 weeks for an investor to receive the proceeds from the redemption.

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