Understanding Structured Finance Products for Investment Portfolios
When considering investment options for a portfolio, it’s important to have a comprehensive understanding of structured finance products. These products can provide potential opportunities for investors but also carry their own set of complexities and risks.
Structured finance products are financial instruments that are created by pooling various financial assets and then issuing a new security or investment product backed by these assets. These assets can include mortgages, auto loans, credit card receivables, and other types of debt. The structuring of these products involves transforming these assets into tradable securities with different risk and return profiles.
One of the most common types of structured finance products is collateralized debt obligations (CDOs), which gained notoriety during the financial crisis of 2008. CDOs are structured products that are backed by a portfolio of debt securities, and they are divided into tranches with varying levels of risk and return. Other structured finance products …