How using derivatives can help build equity buffers and increase returns

Growth in derivative-based defined return investments

With low interest rates, low inflation and anaemic global growth, an increasing number of investors are using derivative- based defined return investments linked to global equity indices to generate potential returns in the 7% to 10% per annum region.

Clearly, to generate this type of potential return, an investor has to take some risk. But if the risks and rewards are clearly explained, together with provision regarding the expected performance of an investment relative to its underlying index or indices over time, professional investors are in a position to decide whether such investments represent the highest probability of returns in an equity market. An example of an investment that has recently been put together was issued by HSBC and was based on the FTSE 100 Price index. Renewables, direct lending and volatility: Manager...