Big Data Technology for Investor Protection

Investing like the others

Bilanz: Friday, September 23rd 2011

Asians like to gamble; Germans like to save on taxes, and we greedy Swiss could learn from them both.

Whoever buys structured products in Switzerland already has earned significant assets.

This differentiates the Swiss from the Germans as well, as they prefer buying their structured products themselves. As their own decision makers, the Germans save the consulting fees. Asians and Germans are the same in this regard. Germans, however, do not necessarily buy high-risk products like the Asians. They are also not as greedy on interest as the Swiss, but go more for discount certificates. According to data from Cfinancials, six times the number of discount certificates were purchased in Germany than reverse convertibles. In Switzerland, the opposite is true.

Discount certificates make it possible to buy a share below its current market price. This is why the investors give up part of the share potential that underlies the product.

Discount certificates and reverse convertibles are particularly suited to generate a return in sideways markets. They are yield enhancement products, as the category is known in technical lingo. Their advantages sell better in Switzerland as interest and in Germany as discounts. This is clearly an expression of the different mentalities. From a taxation perspective, however, the discount certificates have non-cash benefits on their side. On products with maturities of less than one year, the discounts do not have to be taxed. With coupons that belong to reverse convertibles, the taxman is always involved. In this respect, Swiss investors should learn from the Germans and set aside their preference for interest in favor of the tax advantages of the discount certificates.

Additionally, structured products should be better known among the general Swiss population than they are in Asia, because they offer something for less affluent populations as well. However, hopefully in the future this won’t extend to the taxi driver on the next bend casually buying another structured product.