Fixed Income Forum

With 2020 being a hard-hitting year for everyone, global economies are now optimistic for a steady recovery from the dreadful impacts of the pandemic, and positivity is instilled with developments in vaccinations and relief packages promised by the government.

While investments across different asset classes took a hit, structured products particularly stood out as profitable, when it came to investing in the fixed income market in 2020. Structured products are financial instruments, whose performance is linked to the value of an underlying asset, product, or index. Considered “niche”, these instruments are known for their ‘non-traditional’ investment strategies.

In 2020, majority of the structured products’ average returns beat the inflationary pressures of the economy. Investors looked for better income prospects in retail structured products, due to low interest rates and stock market turmoil. Owing to this, more than USD 72 billion worth of structured products were issued in U.S.A. last year, which was up by about 36% as compared to the previous year.

Major banks including Citigroup and Morgan Stanley also achieved record sales for structured products this year. In the last quarter of 2020, Citigroup’s sales for structured products went up to USD 2.3 billion, a rather noteworthy increase from Q4 – 2019 sales of USD 1.1 billion, while Morgan Stanley reported sales worth USD 2.6 billion from its 640 products.

In the UK, 70% of all products maturing in 2020 generated positive returns for investors, and less than 7% generated losses. The rest, however, protected the investors from the plunge in the market.

Given that 2021 is essentially a year of revival, it is anticipated that products maturing this year will also showcase a strong performance. Market experts advise that investors look to include this asset class in their portfolios, owing to reasons that this market is well regulated and often, structured products are seen outperforming other asset classes.

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