Structured products in Switzerland: an investment option for 2025?

In times when traditional investments often fail to deliver expected returns, financial institutions are promoting structured products as an alternative. These complex financial instruments are marketed as tailored solutions for various market scenarios, yet their risks and costs are not always fully transparent. In the Swiss market, one thing is clear: investors must carefully assess the opportunities and risks before committing.

What are structured products and how do they work?

Definition and historical development

Structured products are pre-packaged investments that combine traditional financial instruments with derivatives. This financial innovation emerged in the 1990s in response to increasing demand for flexible investment solutions. Their key feature is the combination of different financial components into a single investment product.

Switzerland has played a crucial role in the development of structured products and remains a leading market for these instruments today. They now form a significant part of the Swiss financial landscape, offering investors various portfolio diversification options.

How structured products work

A structured product consists of at least two components: a base asset (such as stocks, bonds, or commodities) and a derivative component that adjusts the risk-return profile. This structure allows for returns in different market conditions while implementing specific investment strategies.

The exact mechanics depend on the structure chosen. Typically, a traditional security is combined with derivative elements, which can replace standard periodic payments with performance-based payouts. This enables investors to align their investments with specific market expectations.

Comparison with traditional investments

Structured products differ fundamentally from conventional investment options like stocks or ETFs. A direct investment in a company like Apple, for example, results in a straightforward 1:1 participation in price movements. In contrast, structured products allow for more precise investment strategies and access to markets or asset classes that might otherwise be difficult for retail investors to enter.

Their flexibility is evident in their various forms. Capital-protected products offer downside protection, while yield-enhancing products can generate returns even in sideways markets. In an environment of volatile markets and low interest rates, structured products can provide a strategic advantage.

However, these benefits come with trade-offs. More capital protection often means lower returns, while higher return potential usually involves additional risks. Although structured products have become an essential tool in modern wealth management, understanding their risks and features is crucial.

Types of structured products in Switzerland

To provide a better overview of these financial products, the European Structured Investment Products Association (EUSIPA), the leading European industry association for structured investment products, has developed a clear classification system. This systematic categorisation, widely recognised as an industry standard since its introduction, divides structured products into four well-defined main categories.

This standardisation was an important step toward greater transparency and comparability in the structured products market. It provides investors, financial advisors, and other market participants with better guidance and significantly simplifies product selection. The classification is based on the fundamental structure of the products and their risk-return profiles.

Capital protection products

Capital protection products are designed for risk-averse investors. They guarantee a substantial portion of the invested capital at maturity. Even if markets perform poorly, the original investment remains protected, while investors can still benefit from potential market gains.

Yield enhancement products

These products aim to generate returns in sideways markets. They offer regular coupon payments and predefined barriers that determine the risk-return profile. While they can provide higher interest rates than traditional fixed-income investments, they also carry the risk that, in adverse market conditions, not all of the invested capital may be recovered.

Participation products

Participation products allow investors to gain exposure to specific markets or themes. They are particularly popular among those who want to benefit directly from market movements without holding the underlying asset. For example, a participation product may track the S&P 500 index, meaning its value rises and falls in line with the index.

Leverage products

Leverage products are the most dynamic category. They amplify gains but also increase risk significantly, making them suitable for experienced investors. These products multiply the performance of an underlying asset—if the asset rises by 5%, the leveraged investment might increase by 10%, but if it falls by 5%, the loss is also doubled.

Potential risks and how to minimise them

A comprehensive understanding of risk is essential when it comes to structured products. A thorough risk analysis is the key to successful investing in this asset class.

Issuer risk

One of the biggest risks in structured products is issuer risk. This was highlighted during the 2008 financial crisis when the collapse of Lehman Brothers caused significant losses for investors.

Essentially, when you invest in a structured product, you are placing your money with a bank or asset manager, and your returns depend on the institution’s financial stability. To mitigate this risk, investors should:

• Assess the issuer’s credit rating carefully.

• Diversify investments across multiple issuers.



• Regularly review the financial strength of the issuing institution.

Cost transparency

Structured products often involve complex cost structures. Fees typically include the issuer’s margin, distribution commissions, and other hidden charges. Conducting thorough research and seeking professional advice can help investors better understand these costs before committing.

Market risk

Market risk in structured products can be complex and differs from traditional investments. If the underlying asset moves in an unexpected direction, substantial losses can occur. Risk mitigation strategies include:

• Diversifying across multiple base assets.

• Gaining a solid understanding of the specific market dynamics.

• Regularly monitoring market developments.

Liquidity risk

Liquidity can be a significant issue for structured products. Some may be difficult to sell when needed, particularly custom-built or less common products. To manage this risk, investors should:

• Choose products with an active secondary market.

• Consider the investment’s maturity before committing.

• Build a portfolio with a mix of short- and long-term investments.

Currency risk

For international investments, exchange rate fluctuations can significantly impact returns. Even if an underlying foreign asset gains value, an unfavourable exchange rate movement can reduce profits. Investors should be aware of this risk when investing in structured products with foreign exposure.

Conclusion: a careful approach is essential

Structured products are complex financial instruments that require a thorough understanding of their features and risks. While they can offer attractive returns in certain market conditions, they also come with significant risks. Issuer risk, hidden costs, and liquidity concerns can lead to unexpected losses.

For most retail investors, a traditional diversified portfolio of stocks, bonds, and ETFs remains the preferred strategy. However, for those considering structured products, seeking professional advice and allocating only a small portion of their portfolio to these instruments is recommended. Evaluating the issuer’s stability, fully understanding the product mechanics, and realistically assessing personal risk tolerance are essential steps to making informed investment decisions.