In finance, as in cooking, the recipe for success is to simplify complexity. A principle that hit home with Eric D., a fifty-year-old Parisian, automotive industry executive, who is looking for a solution to invest a small inheritance. When his financial advisor Axa offered him an investment with 100% guaranteed capital and offering a return of 6% per year, double that of Livret A, he signed without asking questions.
“When the soup is good, no one will watch the kitchen.”laughs a wealth management advisor (CGP). However, the recipe for these investments that in financial jargon we call “structured”, which have become savings “bestsellers”, does not lack spice!
To create a structured product with guaranteed capital, with a useful life of ten years, only two ingredients are needed: a base of bonds and insurance, also called “options”. Obviously, when 100 euros are invested, about 5 euros end up in the pockets of the different intermediaries that market the product (bank, life insurance company, CGP, etc.). 95 euros left. To replenish the capital after ten years, the issuing bank invests 75 euros at the market rate (2.4% annually) set by the central banks.
With the remaining 20 euros, you buy options that act as insurance premiums to protect yourself from the movements of the underlying chosen to offer the promised profitability. These can be securities listed on a stock exchange, indices based on a basket of stocks or bonds, commodities, interest rates, gold, etc.
Two factors driving the rise: rates and volatility
If structured products with guaranteed capital were successful in 2022 and 2023, it is because they benefited from the rise in interest rates, the driver of the bond base, which allows capital to be protected at a lower cost. The rises and falls of the financial markets, what we call volatility, have increased the level of risk, the driver of the options base, and have allowed the effects of leverage to be accentuated and improved final profitability.
“Structured products began to develop in an environment of low rates that crushed savings and exploded with the rise in rates to progressively replace actively managed funds, because they do not seek, like star managers, to beat the market, but simply to benefit. his. its dynamics”analyzes Benjamin Magny, CEO of the CGP group, Financière d’Orion.
You have 60.33% of this article left to read. The rest is reserved for subscribers.
