Rethinking Portfolio
Resilience in Volatile
Markets

From the subprime mortgage crisis of 2008 to the turbulence caused by the COVID-19 pandemic and the unpredictability of trade wars, history has shown that conventional asset allocations can struggle to balance risk and reward in times of stress.

As a result, sophisticated investors are increasingly turning to structured products—investment instruments designed to offer targeted risk-return profiles, most often by combining derivatives and fixed-income components. These solutions allow investors to shape their exposure to market movements with greater precision, mitigating downside risk while unlocking potential upside in unpredictable environments.

At the heart of their appeal is flexibility. Unlike standard equities or bonds, structured products can be tailored to specific investment objectives, whether capital preservation, enhanced yield, or leveraged participation in market rallies. Those navigating choppy markets prioritise two critical factors: counterparty risk—the issuing institution’s ability to meet its obligations—and market risk, or the potential for adverse price movements in underlying assets. While structured products come with considerations around liquidity and fees, their defining strength lies in their adaptability to different market conditions.
Take capital-protected notes, for example. These instruments enable investors to retain exposure to equities or other asset classes while capping potential losses. The trade-off often comes in the form of a ceiling on upside participation, but in volatile environments, such a compromise can be a prudent choice. Investors who recall the extreme market stress of 2008, for instance, may favour these notes as a way to remain invested while mitigating the emotional and financial toll of sudden drawdowns.

When markets stagnate, structured products can create yield opportunities where traditional investments may falter. Autocallable notes, for example, are structured to pay periodic coupons if an underlying index remains above predefined levels. In conditions where trade tensions or policy uncertainties dampen market momentum, these instruments allow investors to monetise sideways or modestly upward-trending markets, generating returns without relying on significant price appreciation.

Balancing optimism with caution calls for a different approach. Here, leveraged notes offer amplified gains when markets rise while incorporating a protective buffer against moderate declines. In a post-pandemic environment characterised by both growth opportunities and lingering uncertainty, such structures allow investors to maintain exposure to a potential rally without assuming unmitigated downside risk.

Of course, structured products involve trade-offs. The degree of downside protection often comes at the cost of limiting upside potential, and liquidity constraints must be considered. The financial strength of the issuing bank is also critical. However, for investors anticipating heightened macroeconomic pressures—whether in the form of interest rate hikes, currency fluctuations, or geopolitical instability—structured solutions present an opportunity to recalibrate risk in a measured, strategic manner.

In an era where uncertainty remains an enduring feature of global markets, these instruments provide a framework for navigating volatility with confidence. By leveraging structured products, hedge funds, asset allocators, and institutional investors can construct portfolios that are not only defensive but also positioned to capitalise on market opportunities as they arise.