Do structured products improve portfolio performance? A backtesting exercise

Florian Perusset and Michael Rockinger

Journal of International Money and Finance, 2025, vol. 157, issue C

Abstract: In this paper, we show how the inclusion of structured products affects the performance of a portfolio of primary assets. We consider fairly priced, synthetic structured products (convertible bonds, reverse convertibles, or barrier reverse convertibles) that we include in a 60/40 portfolio (60 % stocks and 40 % bonds), a typical portfolio held by institutional investors. We demonstrate that including structured products in the 60/40 portfolio generally lowers returns and risk-adjusted performance across all product types. Moreover, we evaluate the opportunity costs – in terms of utility – of including structured products in the 60/40 portfolio. We demonstrate that the opportunity cost is overwhelmingly negative, implying that investors who choose to include structured products in their portfolios suffer from a disutility. Our findings are robust to alternative settings. We expect further performance deterioration for real-world structured products that are highly illiquid, exhibit high transaction costs, and are often more complex than the products we are considering.

Keywords: Structured product; Portfolio performance; Convertible bonds; Reverse convertible; Barrier reverse convertible; Portfolio management (search for similar items in EconPapers)
JEL-codes: G11 G13 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:157:y:2025:i:c:s0261560625001317

DOI: 10.1016/j.jimonfin.2025.103396

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