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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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