Ordinary investors may not be able to get their heads around complex structured products
With capital guaranteed funds again competing strongly for the investor dollar after the short-lived rally in equity markets, providers have been creating ever more eye-catching products - some with implausible headline returns.
One guaranteed product launched recently claimed returns of 135 per cent plus additional upside.
Providers have also been adding an array of bells and whistles to what were relatively simple products. There are fewer plain-vanilla products and more incorporating structured investments that promise to deliver returns during market downturns as well as upswings - either as a result of market volatility or on the basis of companies' credit rather than equity performance.
This transformation of capital-guaranteed products has been driven partly by investors themselves. While many still demand the security of a guarantee, they also want access to more sophisticated products - though preferably ones that can be presented as a straightforward bet in a sales pitch that takes less than two minutes.
Does this trend really reflect a growing sophistication in the retail market, or are providers simply getting carried away when it comes to gift-wrapping financial products for retail investors?