The US S&P 500 index set new records more than fifty times in 2024, supported by a confluence of favorable economic and financial factors. The stabilization of global inflation played a crucial role by reducing economic uncertainty and reassuring investors. At the same time, central banks pivoted their monetary policy and cut interest rates. For part of the year, the level of the US dollar further enhanced the attractiveness of US equities for non-US investors. Finally, technology companies—accounting for a significant share of the S&P 500 and even of the global MSCI World index—continued to deliver strong performance, thereby underpinning the broader market.
Another major winner in 2024 was gold, buoyed by both economic and geopolitical factors. One of the key drivers behind its rise was increased demand from central banks, particularly in emerging markets, as they sought to diversify their reserves amid heightened geopolitical uncertainty. Investors also contributed to the trend as they looked to hedge against economic and political risks. Geopolitical tensions, notably between major economic powers such as the United States and China,reinforced gold’s appeal as a safe-haven asset.
In an environment characterized by record highs and persistent uncertainty, investors are wondering how to remain invested and capture upside potential — while also mitigating the risk of market corrections. Structured products linked to equity indices or to gold can help investors navigate this complex landscape.
The originality of the product lies in its mechanism for transferring capital between the savings component and the index-linked component.
Capital-protected products are particularly appealing in this environment, as they allow investors to both lock in part of their capital through protection mechanisms and capture some of the upside potential of the underlying assets (in this case, equity indices and/or gold). Any such solution must, however, take into account the fact that interest rates are declining. As a result, the protection structures become increasingly expensive, translating into less generous participation in market upside. That is further amplified when there is rising implied volatility.
The use of bonus certificates can help overcome some of these challenges. These instruments provide investors with participation in the upside of the reference market—again, equities or gold—while benefiting from a capital protection barrier. As long as the underlying does not fall below a predefined safety threshold, the minimum redemption corresponds to the strike price (the “bonus”level), together with participation in the upside of the underlying market.
Another attractive solution is offered by certificates linked to covered call strategies. These products allow investors to benefit from rising markets while partially cushioning downside through the option premiums collected, which act as a safety buffer. The premiums can also generate income in a declining interest-rate environment. Moreover, if indices remain close to their highs, it is reasonable to expect more limited upside potential, in which case the potential negative impact of selling calls should be relatively limited.
Beyond structured products with firm or conditional capital protection and defensive certificates based on covered call strategies, another family of instruments offers an interesting profile for investors seeking to combine return potential with downside protection: certificates commonly known as drop back notes. These solutions combine, within a single product, a savings component offering an attractive interest rate with an initial exposure to an index such as the S&P 500, the SMI, or gold. The cash allocation helps to limit potential losses in the event of adverse market movements.
The originality of these products lies in their mechanism for transferring capital between the savings component and the index-linked component. In the classic version, several trigger levels are defined—for example, 95%, 90%, and 85%. Each time the reference index reaches one of these levels, a portion of the savings capital is reallocated to the underlying index, increasing exposure precisely when prices are lower. This mechanism allows investors to benefit from potential market rebounds following a correction, thereby enhancing return potential.
That said, this structure is not without drawbacks. If the underlying market moves straight upward without ever reaching the trigger levels, the investor will only benefit from partial exposure to the underlying. One way to address this limitation is to consider drop back notes based on a high-water-mark mechanism. In this case, whenever the reference index declines—for example by more than 3% or 5% from its high-water mark over the observation period—a portion of the savings capital is transferred to the reference index. Even in a rising market environment, this approach allows investors to take advantage of the pullbacks that are typical in volatile markets.
Regardless of the mechanism chosen, this type of product is particularly well suited to investors seeking an effective compromise between protection and return potential. It can help them navigate periods of uncertainty with greater confidence.
Gold and US equities: the standout performers of 2024.
Vincenzo Bochicchio
Responsable du développement et du trading des produits structurés
TRANSLATED AUTOMATICALLY, WITH LIGHT EDITING OF THE TRANSLATION BY BCV. ONLY THE ORIGINAL FRENCH IS AUTHORITATIVE.
