Policy Case Study: structured investments

Retail investor research into structured ‘capital protected’ and ‘capital guaranteed’ investments


‘Capital guaranteed’ or ‘capital protected’ products are complex structured investments that typically offer investors returns linked to the performance of shares or investment markets, with some assurances about the return of their original investment at maturity. Derivatives, such as options, are commonly embedded within the product structure. The purpose of the research was to understand how well informed retail investors were about capital protected and capital guaranteed investments, and to document how these investors chose and evaluated this type of investment.

Our research showed why these investments had appealed to risk-averse investors, despite some of the inherent risks.

Here is an extract:

'Capital protected and capital guaranteed structured investments have appealed to two very different types of investor, for two very different reasons. On the one hand, growth-oriented investors have been attracted to the promise of high growth or “turbo-charged” investment strategies, which had the potential to achieve high returns, but which had a built-in protection or guarantee to minimise potential losses. These investors were typically aware that there were risks in seeking such high returns. A capital protected or capital guaranteed investment gave them greater peace of mind, and the confidence to enter this market. On the other hand, some risk-averse investors have chosen to invest in these same investments because they wanted to avoid any loss at all. They chose these investments as a (perceived) safer alternative to investing directly in the share market. They saw the capital protection or guarantee as removing risk. Growth-oriented investors thought about the future, but not the past. Risk-averse investors focused on their own past experiences of investing or those they had heard about in the media, rather than the future.'

Tags: Direct life insurance

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