Easing cycle ahead? Maybe it’s time to get a bit creative

Easing cycle ahead?

Maybe it’s time to get a bit creative

As the Fed and other central banks embark on their first easing cycle since Covid, many investors’ portfolios might feel a bit like Oasis: good for their time, but things have changed. (I’m only slightly bitter I didn’t get a ticket to their tour).

Yields drop, equity rotations begin, gold soars, and suddenly, a performing portfolio feels outdated. You need different solutions for different parts of the cycle. The problem is how to adjust positions in a capital efficient way?

In our seat, we’re seeing many people dip into the structured products toolbox to smooth the transition and I thought it might be interesting to share what our clients are doing.

As rates come down, we’re seeing growing interest in yield products. Most of it ends up in the autocallables bucket, because they provide both higher coupons and substantial downside protection built in (important with S&P at ATH). But there are many other options, like the more mechanical “cash & carry” notes, although they’re more opportunistic—it only works when the shape of the forward curve is steep. You buy an asset and immediately sell it forward to lock in the difference.

A lot of the engagement also comes from management needs or equity portfolio rebalancing. Those with too much tech exposure are using a rainbow note to access defensive sectors. Those concerned with currency swings are looking into changing the base currency of their notes. Those concerned about inflation, or feel underexposed to gold or bitcoin, are getting capital protected upside in order not to miss the next leg up.

But we’ve also seen structured products used as an interesting way to express new narratives. Remember the “Trump” and “Harris” baskets? The same goes for finding creative ways to hedge geopolitical risks—or, as many clients have done, use it as an opportunity to profit from overreactions.

What we enjoy most is solving problems and allowing investors to fully express their creativity. We love the challenge.

Some might say (apologies!), “if you can draw it, we can build it.

Nilesh Jethwa
Chief Executive Officer – Marex Solutions Division

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