High-net-worth and retail investors in structured products are looking for increasingly bullish equity structures. Structuring officials say positive equity sentiment has triggered a rush to create products offering investors added leverage, lower levels of capital protection, or look-back features which lock in gains.
Several retail distributors and private banks are offering look-back structures. These are typically five-year notes, 100% capital protected, which lock in every 5% gain of an equity index or basket to 25%. Low implied volatility--the one-month VSTOXX index was around 14% last week--also means structurers can raise participation rates in equity index and stock-basket notes while maintaining a high level of capital protection. One official noted most European investors seem content with 80% capital protection, if it means they can get 150-200% of the upside of an equity index. Euro-zone investors are also seeing protection levels drop because of rate cuts, he explained.
