Structured Products

What are Structured Products?


Think of them as a pre-packaged bundle consisting of several different products. For example, candy shops or bakeries will offer a basket of already chosen-goods.


Easter Basket Meme

Similarly, structured products are pre-packaged investment strategies that can consist of a wide variety of assets such as securities, commodities or even derivatives. The CFA Institution calls these ‘packaged retail investment products’, or PRIPs.


How Are They Structured?


It is important to keep in mind that there are different ways for investment managers to create a bundle of assets, and depending on such a construction, these bundles could fall anywhere on the spectrum.


Exchange Traded Funds


Consider first, what we are fond of, exchange traded funds or ETFs for short. They are loosely defined by Vanguard as “an instrument that is traded on a major exchange that is a collection of stocks or bonds in a single fund.” An ETF can be a security of any type of assets: stocks, bonds, currencies, commodities, etc. For this reason, ETFs are not their own asset class. Think of it more as a wrapping for certain assets. If you so desire to classify a certain ETF, it would fall under just whatever asset class it holds in the fund.


Mutual Funds


Mutual funds on the other hand, often offer more than one type of asset in the fund. Fidelity defines mutual funds as “a managed portfolio of investments that pools money together with other investors to purchase a collection of stocks, bonds, or other securities.” For record, ETFs can hold multiple asset classes too, but this is less often seen.


Structured Products as Casings


Typically ETFs target a specific asset class / sub-asset class / or sector. If a mutual fund only holds equities, the case could be made as that specific ETF falling under the "equities" classification.


But what about a mutual fund that holds equities, bonds, and a slight percentage of commodities for inflation hedging?


This is where it gets tricky.


It is important to remember that these products are never asset classes of their own; they are just casings. Dependent upon their holdings, they may be represented as one class or another.

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