How to calculate the performance of a structured product

Calculating the performance of a structured product is not always intuitive. Reporting is crucial for tracking the product’s performance. It allows investors to monitor the underlying asset's evolution and compare the structured product against other investments.

📈 Performance during the product's life

Throughout the life of a structured product, the only official valuation—in terms of the product's liquidity—is the net asset value (NAV). The NAV represents the anticipated buy or sell value from the issuer. It fluctuates during the product's life based on factors such as the remaining duration, the performance of the underlying asset, and volatility.

The value of a structured product consists of intrinsic value and time value. The intrinsic value reflects the product’s worth relative to the current level of the underlying asset, essentially the final value if the product matured today. The time value represents the remaining duration of the product, during which the underlying asset could either amplify or reverse its current trajectory.

As the time value decreases, the NAV of the product becomes more sensitive, especially when nearing an event level — such as recall, coupon, or protection. As time diminishes, so does uncertainty.

The NAV of yield products and participation products will react differently: for a yield product, the NAV theoretically never exceeds 100% plus the value of the final coupon(s). For a participation product, the NAV could potentially increase indefinitely depending on the type of product and the underlying asset’s evolution.

Any detached coupon increases the final return on investment but decreases its NAV at the time of payment. This mechanism is also found in stocks, where the price drops by the dividend amount when it is detached.

🎬 Performance at the product's maturity

At maturity or after an early redemption, the product’s performance is calculated according to the contract terms.

For a yield product, the underlying asset’s performance is less significant: as long as it meets the coupon condition, the coupon is delivered. The capital loss depends on the type of protection. If there is a barrier, the underlying asset’s performance must meet the protection condition. If a leverage factor is involved, the impact of the performance must be calculated according to the contract terms.

If the capital is protected, the final performance equals 100% plus the sum of the received coupons. For example, a yield product that has distributed three 2% coupons and whose underlying asset meets the coupon condition at maturity will have generated an 8% gross non-annualized return.

If the product is hybrid — combining yield and performance conditions — the final return will be equal to the higher value between the final coupon and the underlying asset’s performance.

For a participation product, the final performance will be directly linked to the underlying asset’s final performance. Some products, like Twin Win, even allow for profitability in the case of a limited decline in the underlying asset.

⏰ Timing of purchase and sale

It is also important to consider when the investor buys the product.

If the purchase was made in the primary market — likely at 100% — the return is calculated according to the contract terms.

If the purchase was made in the secondary market, the purchase price must be considered. For example, if the product is bought at 79%, no coupon is received, and the underlying asset performs better than the protection barrier, the product will be redeemed at 100%. In this case, the secondary buyer makes a 21% gross non-annualized profit, compared to 0% for the primary market investor.

Additionally, if the product is sold before being recalled or reaching maturity, the performance will depend on the resale price.