Equity Blue

The previous article was devoted to structured instruments that include capital protection. Now, we are going to look in more detail on the first part of instruments that do not contain capital protection. The absence of capital protection can actually discourage many safety-driven investors, but if correctly understood, these instruments can prove to be very profitable and beneficial. It is definitely necessary to understand these instruments. Not without cause has been said by one of the most famous investors of contemporary times, Mr. Warren Buffett, that “risk comes from not knowing what you’re doing “. Let ’s, therefore, try to limit the risks of instruments without capital protection by knowing them and understanding them. The first large group of instruments without capital protection includes the following types of certificates and structured instruments: ·          Credit Linked Notes ·       ...

Certificates and structured products are composed of bonds and options. That was already mentioned in the previous article. Various mixes of bonds and options allow creation of a variety of such instruments. Let’s have a look on individual types. Certificates can be divided, for example, by risk and by its functionalities. A transparent division is offered by the German association for derivatives, i.e. “Deutscher Derivate Verband”, which has been joined by almost all issuers of certificates in Germany. The goal of this association is to support structured instruments, their popularization, and subsequently to maintain high level of transparency in the structured instruments market. The market’s transparency is kept as well by a clear categorization of such instruments. Investors can therefore make themselves a clear picture about individual product types. Based on the association’s methodology certificates can be divided into two basic groups: instruments with capital protec...

Structured products and investment certificates represent a rather new asset class of investment instruments. The most significant market for these instruments is currently in Germany. Structured products are, nevertheless, as well produced a lot in France, Switzerland, Sweden, and in Austria. Outside of Europe they are as well being issued in the USA. Recently these instruments have appeared, for example, in Russia. These instruments become more and more favorable and they continue to be issued in further countries and markets. The history of investment certificates started in the 1990s. For example, in Germany the first certificate was issued in the mid of 1990s. It was a so-called index certificate that enabled investors to participate in the one-to-one ratio on the price development of the German stock index DAX. The certificate was produced in a way by which it exactly replicated the development of the DAX. The certificate’s construction even took into consideration the divi...

We undoubtedly live in very interesting times. After one of the biggest financial crises yet of the years 2008 and 2009 central banks around the world decided to fight the economic recession by a combination of various measures. By using a simplified description, the main measures are decreasing of key interest rates, various forms of a so-called quantitative easing, i.e. pumping of new money into the financial system, and last but not least it is the fierce effort to decrease the value of own currency against the other currencies. The last mentioned effort is so extensive nowadays that the markets tend to describe this period as a period of so-called “currency wars”. Central banks definitely try to do their best in order to restart a sustainable economic growth. From the financial perspective it means to maintain a certain level of “healthy” inflation, i.e. growth of consumer prices. However, this has been achieved only partially, so far. The signs of deflation, therefore, conti...