Structured Products Vs. ETFs - 3 Key Similarities and Differences
ETFs and structured products are types of investment products that an investor can add to their investment portfolio.
ETFs, or Exchange-Traded Funds, are more commonly known to investors. They are designed to track the performance of a specific index, commodity, bond, sector, or even a basket of assets. For example, the SPY is an S&P 500 ETF. It is the largest and oldest ETF in the world. It tracks the performance of the Standard and Poor’s 500 Index (S&P 500) which is one of the most commonly used benchmarks for the overall U.S. stock market.
On the other hand, structured products (or more commonly known as “notes”) are prepackaged investment products that guarantees the investor a payout structure upfront. For example: a principal protected note on the S&P 500 is a type of structured note that offers the investor exposure to the S&P 500 if the index goes up, and be protected if the index goes down. Despite its relative obscurity, structured products market size is 50% bigger than ETFs.
3 Similarities between Structured Products & ETFs:
Access to Niche Markets:
Both structured products and ETFs allow investors to gain exposure easily to a variety of assets or indices - some of which are niche and hard to access. For example, certain ETFs focus on specific sectors, regions, or themes, while some structured products might offer exposure to a particular commodity or cryptocurrency.
Professional Management:
Both ETFs and Structured Products are professionally managed. They are packaged investments designed to meet specific investment objectives. The risks are appropriately measured and hedged, and the instruments traded are managed by investment professionals.
Innovative & Regulatory Compliant:
Both ETFs and Structured Products are highly innovative. They let investors invest in a combination of assets without the hassle of managing positions daily. Furthermore, investors take comfort knowing that both are subject to regulatory oversight in the jurisdictions in which they're offered.
3 Differences Between Structured Products & ETFs:
Complexity and Transparency:
While ETFs are generally straightforward and offer a transparent view of the underlying assets, structured products can be more intricate. The product specifications are often bespoke with conditional returns and specific triggers, making them hard to compare and understand for the average investor.
Cost:
ETFs typically have a transparent fee structure, mainly consisting of the expense ratio. In contrast, structured products might have layered costs, including fees for the product itself. Moreover, the banks that issue structured products might include additional fees for the spread on the underlying assets they purchase to hedge the positions.
Where to Buy:
You can typically purchase ETFs through a registered broker or a financial advisor. In contrast, structured products have more fragmented distribution channels. Often, you would subscribe to a structured note through an investment bank. Or, if you have a connection to a bank’s structuring desk, you can request a custom note based on your objectives. However, you'd typically need a net worth above a certain threshold to access this personalized service.
Fig Investments: Revolutionizing Structured Products
At Fig Investments, our mission is to make structured products as accessible as ETFs.
Through Fig’s web application, investors can easily and transparently customize, compare, and purchase innovative structured notes tailored to their investment goals—all at a fraction of the cost typically associated with banks.
For more information, please visit Fig Investments.
Remember that none of the information presented in this letter or on the blog constitutes investment advice or solicitation of any kind. Fig Investments is not currently offering any investment products. Before investing money in any asset or investment product, you should conduct your independent due diligence. Please refer to Fig Investments' disclosures here.