ETFs vs Structured Notes: The Equity Yield Enhancement Puzzle

Abstract

Under a particular low rates global context, the portfolio optimization question is more relevant than ever. This unveils more implicit problems which long-only investors face as well as monitor and control risks, satisfy regulatory requirements while seeking to translate a market anticipation into position in the simplest and the more comprehensible assets they can find to avoid unwanted technical downturn, and optimize their structure of fees.However, with a wide range of eligible asset classes, and under a diversification purpose, the portfolio optimization problem is often exceeded, including the aim of enhance yields in accordance with the portfolio structure and levels of hedging. This can be particularly relevant when traditional assets deliver a shifted conception of performance, meaning stocks can be invested for dividend yield and bonds for rate curve movements, and when volatility spikes obstruct a market long-term vision. This paper aims to introduce Exchange Traded Funds and structured notes as equity yield enhancement products, by presenting and confronting characteristics an investor have to focus when he seeks to find the product likely to match his needs.