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Why I have actively used structured investments in my portfolio over the last decade

As an investor who has been investing in Structured Investments for the better part of 10 years, I have come to learn a thing or two about this powerful, highly versatile, but often misunderstood investment product.

Structured Investments are a powerful way for investors to access defined risk and return outcomes. Being able to target a defined rate of return, buffer market volatility or capitalise on an emerging thematic can significantly optimise one’s portfolio risk and targeted return outcomes.

Prior to Stropro, I utilised private banks to leverage their access to institutional trading teams who assemble these unique products. Primarily due to the difficulty of access, we came to the realisation that Stropro needed to be founded — a story for another time! However, what I want to start sharing is the ability of structured investments to leverage the institutional capabilities of global banks to achieve specific investment outcomes for my investment portfolio. I am talking about a $10 trillion structured investments market that most Australian investors don’t even realise exists.

Downside Protection

I was once a Magellan disciple, following Hamish up the mountain of steady gains, and more recently the not so happy slide down the slopes of rapid value destruction. This roller-coaster definitely helped lend significant credence to the part of my portfolio where I was actively using structured investments to preserve capital and generate fixed returns through various market cycles.

You might have seen the article from our Chief Investment Officer, Ben Streater talking about how structured investments can, in many ways, bubble wrap your portfolio better than ETFs. One of the key reasons I use structured investments is because of the built-in downside barrier aka the ‘Bubble Wrapping’, that enables investors to navigate market volatility over the term of the investment. In fact, this feature has allowed me to navigate various market corrections including the Global Financial Crisis, the European sovereign debt crisis, the COVID-19 sell-off in 2020 and more recently the market sell-off in 2022 driven by inflation fears and higher interest rates.

I have successfully used the downside barrier feature across various equity market exposures within the Australian banking and mining sector, global big tech, European banking and global consumer staple stocks. The mitigation of market volatility through the use of structured investments has become a core feature of my portfolio.

Defined Returns

One of the inherent benefits of a structured investment is the ability to fix the rate of return. This helps in two ways. One, I can generate returns regardless of the level of market volatility and two, I am more certain about my cash flow generation (particularly for my SMSF). Why is this important? I have traditionally used the equity market to generate income returns, i.e. picking strong dividend-paying stocks. However, I have seen over many years dividends compress and market forces impact the value of my invested capital. I have used corporate debt (bonds) to generate income, but increasingly found yields falling and bond prices fluctuating with interest rate cycles. So in the end, increasing equity or bond market exposure to pick up the slack was not necessarily always an optimal investment outcome.

In most cases, I increased my structured investments exposure to skew the risk and return outcomes in my favour. I used downside barrier features to navigate volatility and I used fixed returns to build certainty of the income stream. This enabled me to optimise my portfolio construction.

Additionally, I have utilised a series of other features within a structured investment to further customise and turbocharge the performance. I have used leverage to enhance my upside return on emerging thematics, access non-correlated market returns and even packaged up various ETFs into a single structured product to create improved risk/return outcomes. But for now, let’s leave that conversation about enhanced features to a follow on article. If there is but one message to take away though, it’s that the world of structured investments is extremely powerful and versatile for any investment portfolio.

Ultimately, the ability to construct a portfolio that is dynamic, robust and resilient to changing market conditions and opportunities means that structured investments are a must-have for any sophisticated investor.

Written by Robert Nicholls

This article has been prepared by Robert Nicholls. Robert Nicholls is a co-founder and Director at Stropro Operations Pty Ltd (ABN 28 633 603 399) (Stropro). This article is for educational purposes and is not a substitute for professional and tailored financial advice. This article expresses the views of the author(s) at a point in time, which may change in the future with no obligation on Stropro or the author to publicly update these views. This article uses information from sources the author considers to be reliable but does not represent that such information is accurate or complete, or that it should be relied upon. Past performance is not a reliable indicator of future performance. Investments may rise and fall in value and returns cannot be guaranteed. Stropro makes no representations or warranties, express or implied, as to the accuracy or completeness of the information it provides. Stropro Operations Pty Ltd (ABN 28 633 603 399) is a Corporate Authorised Representative (CAR №1293257) of Stropro Compliance Pty Ltd (ABN 74 640 214 740, AFSL №533443).

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Stropro Team

Stropro Team

Stropro is Australia’s dedicated platform for sophisticated investors, we offer exclusive institutional opportunities from the world’s leading investment banks.