B (3:05)

There are two areas in my view. The first one is really discipline. And the second one is staying invested. And those two anchors are related to, on the one hand, some investors being maybe tempted to do rash decisions or bold moves. And we don't recommend that at all, particularly when the fog of war hasn't settled yet. The second thought there is really about asset allocation is sticking to your personal asset allocation. So don't be wavering in reading the news or having actually looking at market moves, but looking at your own personal situation and if there is nothing changing there, to stick to your asset allocation and be disciplined. And the last point I would like to make in that context is about diversification. And Helen, you have heard me a lot talk about the risk drivers, the return drivers, and to diversify those. And that's really essential to build a resilient portfolio, in my view.

A (4:18)

Okay. And maybe at this point it makes sense to bring you in, Max, and talk about structured products. Structured products for many, not everyone, I'm sure, but I think for quite a lot of people, they may be put off because they seem too complex. So, Max, maybe firstly, why would you say, or in what scenarios would you say it's appropriate for structured products to be considered as part of a portfolio? When might a structured product make more sense than investing directly in an equity, An ETF or a bond, for example?

C (4:52)

Thanks, Ellen. You're right that structured products sometimes have a reputation for being complex. But the core idea is actually simple. They combine traditional building blocks, typically a bond component and an option component, to create a specific risk return profile you can't easily replicate by just buying a stock or an etf. I think the key word is customization. When you buy an equity, you get the full upside and the full downside. A bond gives you a fixed coupon. A structured product sits in between and lets you shape the outcome. You can decide, for example, that you want exposure to the S&P 500, but you're not comfortable with a 30% drawdown, so you built in a buffer or capital protection or minimum redemption. Or you believe markets will move sideways and rather than earning nothing, you'd like to generate an attractive coupon in exchange for defined risk. So when do they make more sense than a direct investment? I think typically in three scenarios. First, when you have a nuanced market view, not just markets will go up, but something like markets will trade in a range. Second, when you want to define your risk upfront. And third, when you're looking for yield that traditional fixed income doesn't offer, the honest truth is structural products don't replace equities or bonds or ETFs, they complement them. Used correctly, they let a portfolio express views and manage risks more precisely.

A (6:23)

Okay, so they can be a complement to other things in your portfolio. Anything to add here from your side, Yves?

B (6:30)

That's very similar. How I discuss with investors the use of structured products within in three scenarios. First one is reducing risk. Second one is monetizing the volatility in the market as a return driver. And thirdly, basically like Mok said, implementing any view an investor might have in a very elegant way.

A (6:54)

Essentially then, structured products can be categorized into four different categories. And selecting a product appropriate for your portfolio is all about looking at your specific risk and return profile and then aligning your investments with your market outlook and financial goals. And these four categories are capital protection or minimum redemption, yield, enhancement, participation and leverage. I think it would be helpful, Max, if you could briefly outline what these four different categories are, please.

C (7:29)

Absolutely. Think of it as a spectrum from defensive to aggressive. Capital protection is the most conservative. You get back a defined percentage at maturity, typically 90 to 100% subject to issuer risk and participate in the upside, ideal for market exposure without significant downside. Yield enhancement is the most widely used. Think of it with barrier reverse convertibles, autocallables, you receive an attractive coupon well above bond yields in exchange for equity like downside if barriers are breached. Best in sideways or moderately bullish. Market participation products replicate or enhance an underlying performance. A tracker for one to one exposure or an outperformance certificate getting for example 150% of the upside exposure leverage products like warrants, Mini futures, Knockouts Magnify exposure used for tactical positioning or hedging and required active management. So I would say there's no best category, only the one that fits your objective.

A (8:38)

Can you talk a little bit about the link between volatility and structured products, Max? Which products might be appropriate when volatility is higher and which when it's lower?

C (8:49)

Yeah, this is very important because volatility is essentially the raw material of shorter products. When you build a product, you're essentially trading volatility, so its level directly impacts the terms. You can get the intuition higher volatility means more expensive options depending on whether the product buys or sell options that works for you or against you. The enhancement products sell volatility. So when volatility is high, you get much more attractive coupons or barriers set further from current prices. Surprisingly, the scariest moments in markets are often the best moments to issue these products because you're getting paid more to take risks Capital protection products or minimum redemption notes work the opposite way. They buy options to create protection. So high volatility makes them expensive to build. In coal markets you get much better participation rates because the options are cheaper. I would say the practical takeaway, don't just look at the market level when deciding on a certain product. Look at where volatility is. A product that seems unattractive today might actually be very compelling in two weeks if volatility doubles. So timing matters and this is where working with an experienced advisor really pays off.

A (10:11)

What are your thoughts then, Yves, on which structured products might be more appropriate in the current market environment?

B (10:18)

This really depends on the investor and I like a lot what Max said that structured products are all about customization. I can imagine though a few use cases. One would be if you're investing in a market which you don't really know so well, for example, you are a European investor and you would like to invest in Chinese equities, there it makes sense to invest or start with a more defensive approach. And for this a structured product would be suitable. The second example could be gold. We have seen increased volatility in gold and that would be an opportunity now to monetize this volatility and complement positions you have already and you might be happy to grow further. So that would be another example. Overall, in the current market environment, I believe structured products help you to stay invested. Because if you're worried about some positions, you can either hedge, you can either also partially implement a structured product strategy which reduces the risk of disposition while still being invested. And that would be a strong implementation guide to focusing on the ground rules we discussed earlier, which are so important in investing.

A (11:41)

It is of course important for us to also mention the risks involved when investing in structured products. I know that credit risk, liquidity risk and market risk are some of those that should definitely be considered. Can you talk a little bit about these and any other risks that would be important to think about, please, Max?

C (12:01)

Yes, absolutely essential to cover. Let me highlight the main ones. I think the most important is credit risk or what we call issuer risk. A shorter product is essentially a debt instrument issued by a bank. So if that bank defaults, you become a creditor in bankruptcy proceedings, regardless of how the underlying performs. This is why we pay close attention to issuer credit quality and often diversify across counterparties. Second is market risk. The risk that the underlying moves against you is in the barrier versus convertible. If the worst performing underlying breaches the barrier, you can end up with losses equivalent to holding the stock. Directly. The coupon cautions this but doesn't eliminate it. Investors need to be comfortable with the worst case scenario, not just the expected one. And the third is, as you mentioned, liquidity risk. Short products are typically held to maturity. Wide issuers usually provide a singular market bid of express can widen significantly in stressed conditions. Beyond these there's complexity risk. Understanding exactly how the payoff works requires careful reading of the tail sheet currency risk if the underlying is in a different currency than your reference and finally maybe tax impacts treatment which varies by jurisdiction. So the bottom line social products are not set and forget instruments used within a diversified portfolio with professional guidance they add real value but respect for the risk is non negotiable.

A (13:35)

All right, maybe just lastly then what are you seeing at the moment Max? What are some of the most popular structured products right now?

C (13:46)

I would say that three stand out. First, multi barrier reverse convertibles on global equity indices typically structured on three or four major indices, something like the S&P 500 Euro STOXX 50 index S& I and decay. Given elevated volatility from geopolitical tensions, coupons at the moment are quite attractive. Often high single digit or double digit annualized investors like into those products diversifying risk across multiple markets with barriers typically between 30 to 40% below current levels. The second one on the defensive side, we see strong demand for bullish capital protected or minimum redemption solutions on equity indices, again particularly on the Euro STOXX 50 index. So European equities look interesting on valuations, but many clients want exposure without the full downside. So we could structure a note with 100% capital protection at maturity and 100% participation in the upside over the next three to five years. Maybe the third one. Reflecting on the cautious mood. Lots of interest at the moment in hedging solutions. Specifically put look back options with daily observation on the S&P 500. A loopback means the strike is set at the highest level observed during the product slide. So you lock in the peak for clients with significant U.S. exposure worried about the correction but who don't want to sell. These are powerful tools. What ties all three together is that investor aren't abandoning equities, still looking for smarter ways to stay invested.

A (15:37)

Thank you both very much for joining me today and for the interesting conversation of course.

B (15:42)

Thanks for having us Helen.

C (15:44)

Anytime. Thank you very much Helen.

A (15:47)

So that concludes this week's View beyond podcast. I hope you enjoyed the conversation and that you'll join us again for the next edition next week. In the meantime, remember to check out our daily Moving Markets Podcast, which is available every weekday on the same channel. Bye for now.

D (16:12)

The information and opinions expressed in this podcast constitute marketing material and are not the result of independent financial or investment research. Please refer to www.juliusbear.com legal podcasts for further other important legal.