Participation products

When discussing structured products, the focus is often on yield products like Autocall, Phoenix, or Reverse. However, participation products, though less known, can be an interesting alternative.

⚙️ How do they work?

Participation products allow investors to benefit from the upward — and sometimes downward — movement of an underlying asset. These products typically do not pay coupons and are often observed at maturity.

They allow investors to take advantage of all or part of the potential rise of the underlying asset — sometimes even more with leverage — while offering capital protection at maturity. In return, the investor forfeits any dividends that the underlying asset may generate. The liquidity of participation products is daily; however, the net asset value of the product is not equal to the performance of the underlying asset—time value costs money.

💡 Some examples of participation products

Outperformance Certificate

This certificate allows the investor to benefit from the rise of the underlying asset beyond a defined threshold, enhanced by leverage. This is known as asymmetric participation or outperformance.

Airbag

Similar to an Outperformance Certificate, the Airbag includes capital protection, either standard or leveraged.

Bonus Certificate

The Bonus Certificate allows the investor to benefit from the rise of the underlying asset, as well as a bonus return if the underlying asset finishes above the protection barrier at maturity. The higher the barrier, the higher the bonus, as the investor takes on more risk.

In this example, up to a -20% performance, the investor receives the higher amount between the bonus and the positive performance of the underlying asset. Below -20%, the investor recovers the performance of the underlying asset.

Twin Win

As the name suggests, the Twin Win allows investors to benefit from both the rise and fall of the underlying asset. It is composed of both a call option purchase and a put option purchase. Two factors influence the price of the Twin Win: dividends and volatility.

Between the two boundaries of the product—+20% and -20% in this example—the investor recovers the absolute value of the underlying asset's performance. Beyond the upper boundary, gains are capped. Conversely, below the lower boundary, the loss equals the performance of the underlying asset.

Participation products can also include additional features, such as:

• Upside Cap: to reduce the product's cost, it may be capped, meaning the return is limited to a certain level (e.g., the investor benefits from 100% of the performance up to +20%);
• Lock-In: if a predetermined level is reached, the performance is locked in, or the capital becomes guaranteed at maturity;
• Average Performance: the final performance of the product can be an average of the underlying asset's performance, either over the product's entire life or over a specific period. There's also the option to take the maximum performance — Lookback Max — of the underlying asset, though this option is more expensive.

Participation products are particularly suited for investors who want to protect their capital even when prices moderately decline, without sacrificing participation when the underlying asset's price increases.