Are the infamous structured products such as accumulators making a return to high-net-worth investors' portfolios? Yes and no, according to wealth managers in Hong Kong. When the risk appetite of investors is low, there is typically less desire for risky structured products. Not surprisingly, given the financial crisis, client activity in structured products was slow last year. But margins increased temporarily in the first half as volatility shot up to record levels. Renewed interest since then has seen a return to these investment vehicles, albeit in simpler structured products with well-known underlying assets and shorter tenors. As Enid Yip, chief executive for Asia at Sarasin Rabo Investment Management, notes: 'We are seeing some Asian clients buying simple, short-dated equity linked notes [ELNs, selling puts] for yield enhancement, since deposits have a near-zero return.' At the beginning of last year, investors transferred their assets into cash. Then they moved into cash bonds, taking credit risk on familiar names and enjoying the yield that this market was providing. As the yield shrank, they started to look for better returns. Initially, they played the equity markets, which had a good run until last April. But uncertainty since has driven them to seek diversification and better returns in structured products. According to Marc Saffon, managing director and head of financial engineering for Asia-Pacific at Societe Generale in Hong Kong, a typical investor would now aim to allocate 10 to 20 per cent of their portfolio to structured products. This compares to less than 5 per cent at the beginning of the year and almost 50 per cent at the end of 2007. 'We see a growing appetite among investors for structured products as a way to diversify against current portfolios and to improve their risk/return profile,' he says. Curiously, the past 10 months has seen rising demand for foreign-exchange-linked structured products, typically with a shorter tenor of one month, says Bruno Lee, HSBC's regional head of wealth management for personal financial services, Asia-Pacific. 'These kind of FX-linked structured products are for investors who want a slightly higher return and don't mind buying FX-linked products at a certain price or below,' he says. He notes an additional interest in equity linked structured products that provide higher potential yield during the holding period and a chance to receive stock at a predetermined price at maturity should the price fall below a certain threshold. Structured products can range from a simple dual currency deposit to a more risky, complex derivative structure. But they are, according to Michael Benz, head of products and services at UBS Wealth Management, rational and efficient tools in which to take positions with a certain investment view. 'Structured products are an integral part of the universe of investment instruments. But clients are definitely much more sophisticated and knowledgeable in their approach,' he says.
