Structured investment products
A structured investment product is typically a deposit or security that combines a fixed-income component with a return component linked to an underlying asset. The return depends partly or wholly on the change in value of that underlying asset. Structured investment products can be designed for a wide range of purposes, which means their risk and return profiles may vary significantly. Often they are used to complement a portfolio by targeting specific investment goals.
Although structured products may appear complex, their cost structures are often relatively transparent upon closer examination. They allow investors to manage the balance of risk and return in their portfolios while also improving diversification.
The EU’s Markets in Financial Instruments Directive II (MiFID II) requires clear disclosure of risks and costs associated with investment products. Responsible banks provide detailed information on the fees investors pay for structured products and the potential losses they may face on their invested capital.
Other investment options
ETFs and ETCs
ETFs (Exchange Traded Funds) are exchange-traded index funds that are traded like shares on the stock exchange, with prices that fluctuate continuously on the market. An ETF typically tracks a specific index, and its portfolio is structured to mirror that index. For this reason, ETFs are usually managed passively: the fund manager does not actively trade the fund’s assets but instead maintains investments according to the composition of the reference index. ETFs can be inverse (tracking the opposite of an index) or leveraged (magnifying index movements). It is important for investors to understand how each ETF operates. Some comply with the standard requirements that apply to funds, such as diversification rules, while others may differ significantly.
ETFs offer an efficient way to access international equity markets, enabling investors to respond actively even to short-term market movements. ETCs (Exchange Traded Commodities) are exchange-traded securities similar to ETFs but linked to commodities. They track the price development of individual raw materials and goods such as grain, coffee, oil, energy, industrial metals, livestock or gold. For retail investors, ETCs are the simplest way to invest in commodities.
Derivatives
A derivative is a financial instrument whose economic value is based on the value of another security, index, currency, commodity or right. There are two main types of derivatives: forwards and futures, and options. The key difference lies in what kind of obligation they create. Forwards and futures contracts bind both parties (the buyer and the seller) to complete the transaction under the agreed terms, whereas option contracts only bind the seller, while the holder has the freedom to decide whether to exercise the option.
Among retail investors, the most common derivatives are warrants. A warrant is a security (option certificate) issued by a bank or brokerage, linked to an underlying asset such as a share, index, commodity or currency. Warrants always have a limited term, also known as the exercise period. They are listed on a stock exchange and traded like shares. Typically, no physical purchase or sale of the underlying asset takes place at expiry; instead, the issuer pays the net value in cash.
A turbo warrant is a type of warrant that expires during its term if the underlying asset reaches a specified knock-out level. In exchange for higher risk, turbo warrants offer even greater leverage than ordinary warrants.
Retail investors can also trade in listed companies’ stock options, which give the right to subscribe to company shares at a predetermined price (and thus buy shares below their market price). Options are commonly used as an incentive and reward mechanism for company management and key personnel.
Property investment
Property is considered a safe investment, capable of generating stable returns through rental income and potential appreciation in value. Property is a tangible asset, the rental and retail value of which can be increased through renovation. The profitability of an investment property depends heavily on the purchase price, which is determined by factors such as location, size, condition, age and the financial standing of the housing company. The net return is also influenced by maintenance and repair costs, the amount of debt, and any appreciation achieved when the property is sold.
Property investment can also be made through funds. Real estate funds generate returns not only from rental income but also from changes in property values. Such funds suit investors seeking steady returns – higher than fixed-income investments but with lower risk than equities. Compared with buying a single property, real estate funds offer diversification that helps reduce risk. They can also complement an ASP account as a means of saving for a first home, since the value of savings follows housing market developments at least in part.
Forest investment
Returns from forest investments mainly come from the growth of the trees, timber sales and increases in timber prices. Like with any other asset, the value of forest land fluctuates, depending on the location, size and the type of the wood lot.
Forest investment can also be made through funds, which relieve the investor of the need to manage the forest or handle timber sales. Instead, the investor simply participates in the returns. Forest funds are particularly suited to those seeking predictable returns with moderate risk.
Combination products
Banks also offer various combination products that merge, for example, a fixed-term deposit with an index-linked bond or a fund investment. In practice, this means that alongside a term deposit, which pays a higher-than-usual interest rate, part of the funds are allocated to another investment product. Term deposits can range in length from just a few months to several years.
In such combination products, the return from the additional investment – such as a fund unit – depends on prevailing market conditions. Banks usually charge subscription fees and other costs for the fund investment according to their price list.