Structured products vary widely in their risk/return dynamics. A systematic framework helps advisors compare them:
- Volatility and drawdown: measure the variability and worst declines of returns, indicating market risk.
- Duration and convexity: for fixed-income-like structures, these metrics indicate sensitivity to interest-rate changes.
- Collateral and credit quality: understand what assets back the note and the creditworthiness of the issuer.
- Liquidity windows: identify how often investors can redeem or trade the product and any notice periods.
- Triggers and payment waterfalls: examine performance triggers (e.g., knock-in/knock-out levels) and the order in which cash flows are distributed in different scenarios.
By evaluating these factors, advisors can compare structured products on a like-for-like basis and select those that align with client objectives.