19.10.2015

First comprehensive Swiss study on structured products: Facts instead of presumptions

95_Bild StudieThere has been a great deal of speculation and conjecture about the performance, the costs as well as the investment opportunities for structured products – the first academic study on the Swiss market is now casting light on the topic and is debunking preconceptions. The SSPA commissioned the Swiss Finance Institute to draw up a study to clarify the performance, the costs and the investment opportunities for structured products. Structured products performed positively, during the period covered by the study, at reasonable costs.

The performance of 20,000 products was analysed for the period 2008 to 2014 with due account taken of the financial crisis and the European debt crisis. To draw conclusions about the costs of structured products, the researchers examined 7,275 products from 2012 to 2015. The analysis revealed that these products achieved returns of between 5 % and 15 % p.a. under normal market conditions. The results showed total expense ratios (TERs) for structured products of between 0.3 % and 1.7 % p.a., including net margins and production and distribution fees.

Performance: During the 2012–2014 period around 80 % or more structured products generated positive returns, with average median returns of between 5 % and 15 % p.a. under normal market conditions.

Costs: According to the study, the costs incurred by investors in conjunction with issues of the most popular structured products per product category were between 0.3 % and 1.7 % p.a. The costs, expressed as the total expense ratio (TER)1, correspond to the sum of the net margins as well as all production and distribution fees. The rounded off average median TERs for the period from April 2012 to April 2015 were:

Product category Tracker certificates Capital protection certificates Bonus certificates Discount certificates Barrier reverse convertibles
Median TER 0.3% p. a. 0.6% p. a. 1% p. a. 1.4% p. a. 1.7% p. a.

Investments: Swiss investors showed great interest in barrier reverse convertibles on equities, tracker certificates and capital protection certificates. The study encompasses case studies that focus not just on possible yield expectations, but also show that investor views drive any decision to invest or not to invest. The Swiss National Bank’s decision to abandon the minimum exchange rate against the euro in January, and the announcement at the beginning of the year that quantitative easing would be implemented within the Eurozone, made it possible to realise investments – such as for example high dividend EUR equities – with a discount of 15 % or barrier reverse convertibles with low barriers and a coupon of 1 % to 2 %.

Georg von Wattenwyl, SSPA Chairman: “With this study, a further milestone has been reached in terms of the transparency and clarity of structured products – qualities which the SSPA has sought to promote for years. The academic study demonstrates that structured products are efficient investment options.”

The study presentation is available here.

1 The authors call the difference between the issue price and the market compliant price of the components the total expense ratio (TER). This means investors are effectively informed about the cost of structured products in a manner that enables comparisons to be drawn with the key performance figures of other products. This key performance figure does not, however, correspond to the anticipated issuer margin or the sum of the issuer margins, including the distribution and structuring fees. The anticipated issuer proceeds (profit) is lower, and can be determined only when the product matures. This is because it is only then that many of the cost components can be definitively determined; these may even prove to be higher than the TER reported in this study. The issuers need to pay all of the costs of the structuring (personnel, technology, know-how), of documentation (brochures), of (in-house) funding, of training and advising the investors, of distribution (advertising, sales representatives), of the stockmarket listing, of secondary market prices etc. from the TER reported in this study.

133_Pressecollage Studie

Media coverage of the structured products study.

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