Unstructured reflections: Embracing the Tsunami of Structured Products. A Game Changer for Canadians

The Canadian?structured products?market is a unique and fiercely competitive arena. Coordinating seven top?issuers?for the SPi Canada event was no small feat, but the rewards were nothing short of astonishing. With 308 delegates and over 200 advisors in attendance, it was undeniably one of the most remarkable?structured product?events to date. The enthusiasm and thirst for knowledge among delegates were palpable, as they sought to understand the potential of?structured products?and how to convey their importance to compliance departments and client objectives.

The event kicked off with a captivating SPi keynote address. The highlight of the day was the unveiling of the groundbreaking, yet unreleased book titled "The Next Generation of?Portfolio?Management: Maximizing Success with?Structured Products." This book delves into the third generation of?portfolio?management theory, emphasizing goal-based strategies. It introduces the concept of?structured products?as an overlay of?payoff?diversification?atop asset and?exposure?diversification.

Consider the example of a passive domestic equity?exposure?aiming for a 7-8% target return. Instead of going all-in on the S&P 500, allocating 60% to?income?structured products?(Autocallables), 20% to?growth products?with?Buffer?and Barriers, and just 20% as a direct investment can dramatically reduce the average annualized?volatility?from 20% to a mere 5%. This shift results in a?Sharpe ratio?of 1.3, compared to the 0.5?Sharpe ratio?of the S&P 500 over the last three years. For further insights, one must eagerly await the book's official launch.

The morning was a whirlwind of discussions centered around the?future?of?structured products?and innovative product ideas, leaving advisors busily jotting down?notes. Manufacturers are anticipating a wave of autocallables expiring by year-end, making education and automation essential tools for advisors in their conversations with investors.

Randall Bartlett, Senior Economist from Desjardins, presented various economic scenarios. His cautiously optimistic outlook aligns with the Bank of Canada's forecast, but he also warns of a potentially tepid 12 months ahead, with significant?downside?risks. As central banks contemplate rate cuts later this year or early next, heightened?volatility?looms. Many leading?issuers?see autocallables with regular?income?streams, potentially expiring in the first six months of next year, as an attractive opportunity to reinvest at lower strike levels and higher headline rates. Additionally,?callable?principal-protected?notes?and short-term?boosters are being explored to capitalize on sector opportunities.

Despite facing competition from the Wolf of Wall Street in the same hotel, the afternoon session did not disappoint. The workshop with?issuers?emphasized the need for greater support from?issuers, particularly in dealing with compliance departments to debunk the myths surrounding?structured products. Perhaps, technology and AI could be the catalysts for this transformation.

The event concluded with a riveting conversation among leading advisory firms. Martin Pelletier brought up an intriguing analogy: if you place one hand in cold water and the other in hot water, then?put?both hands in lukewarm water, is it cold or hot? The sensation is both. The point being, people often perceive things differently from reality and people who criticise structured products face the same problem. They will not be able to understand the reality that they are being left behind. The panel drove home a harsh reality check: the advent of technology and?ETFs?has transformed the value of an advisor. To survive and thrive, advisors must embrace?structured products?and showcase their value in this ever-evolving landscape.

In conclusion, the Canadian?structured products?market is on the brink of a transformative wave. Advisors and investors alike must adapt, seize the opportunities, and ride the tsunami of?structured products?to secure their?future?success in the financial world.

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