New breed of protected investments offer genuine alternative

The latest generation of structured products offers investors a genuine, and in some cases superior, alternative to conventional long-only funds, according to Barclays Wealth.

Colin Dickie, a director at Barclays Wealth, says today's protected investments are largely unrecognisable from those offered in the past, with pay-offs increasingly determined through fund-like strategies and products accessing a wide range of asset classes.

He points out that the current suite of protected investments are able to act like a fund manager would in similar circumstances - adjusting market exposure according to changes in volatility for instance - so that returns from historically rockier markets are effectively smoothed. But he says protected investments can steal a march on long-only funds by marrying this approach - which, unlike conventional funds, is not subject to human fallibility - with capital protection.

However, Dickie stresses that investors and advisers should carefully consider their views on markets when choosing from this new breed, pointing out that providers often link to the same asset class or underlying index in a range of different ways in order to alter the risk/reward equation.

Nevertheless, he believes that the line between funds and structured products has begun to irrevocably blur, arguing that it is only a matter of time before protected investments become more central to investors' portfolios.

Dickie says: "The innovation we have seen in the sector over the last three years has been staggering and the industry now offers a dynamic and relevant range of products for advisers and their clients. The explosion in the growth of payoff styles and expansion into new and exciting investment areas mean that structured products can offer a genuine alternative to conventional long-only funds, plus the added comfort of capital protection.

"The advent of 130/30 funds, life-styling and specific retirement funds shows that the traditional fault line between structures and funds is shifting in a way it never has before. I believe that as advisers embrace portfolio modeling tools and get a better handle on understanding risk, then structured products, either as funds or as term-based protected investments, will become increasingly central to portfolio planning and credible alternatives to traditional fund-based solutions."