ANALYSIS
The big shift: the search for income begins The increase in interest rates in 2022 has triggered fundamental changes in the investment landscape and the product mix in the structured products market. By Tim Mortimer
Image: Leeyiutung/Adobe Stock
T
here have been significant increases in interest rates across all major markets in the last 12 months. This has been caused primarily by inflation concerns causing central banks to raise rates.
As a result, the world has quickly moved into a higher rate environment after over a decade of near-zero interest rates and many commentators wondering they would ever rise again to more normal longer-term levels. While the rise in interest rates is interesting from a macroeconomic perspective it also fundamentally changes the investment landscape. Until a year ago, cautious investors were having to make a choice between accepting very low yields from any cash-based investment, gaining slightly more returns from a bond portfolio
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but with exposure to rate rises or accepting market volatility by utilising equities or equity-linked products. With the rise in interest rates many income generating possibilities have appeared. The simplest of these are cash and deposit rates that have started to rise, followed by a bond market which has adjusted to higher rate expectations by shedding capital value last year. While both these asset classes offer higher rates than a year ago, they are still around the 4% pa mark in most major currencies such as US dollar and the euro. Many investors are looking for levels in excess of this figure with minimal risk. Structured products provide a wealth of income generating solutions, divided between capital-protected and at-risk