Irish investment product development trends have been examined by US investment bank Merrill Lynch over the last six months. The popularity of index-linked tracker bonds continues as more institutions enter the market, says the June edition of Structured Retail Products.
"These new entrants have generally targeted a lower margin or commission on their products which has led some of the established providers to examine their pricing requirements."
Most issuers are now offering products with a higher capital risk due to an increase in demand, the report says. It appears investors are now more willing to take more risk for potential greater returns. The products on offer are increasingly structured to take an investor's capital risk profile and minimum capital return needs into account.
For example, the Ulster Bank Eurozone products use a reversible convertible structure. "The investor takes part in any fall in the market in return for an enhanced return if the market is flat or higher over the term," the report says.
The regulatory and tax environment changed for trackers following an increase on the rate for special investment policies to 20 per cent from 10 per cent. This compares to the Deposit Interest Retention Tax (DIRT) rate of 24 per cent, says the report.
For this reason, some older tracker structures may not be as desirable as they were under the previous tax regime.
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