It has been a summer of turmoil for global equity markets and the recent ‘flash crash’ has obviously seen more losers than winners. The year 2011 may well turn out to have been an excellent time for those investors who stand by the old adage of ‘sell in May, go away, reinvest St Leger’s Day’.

Almost 90 per cent of all Investment Management Association sector funds have lost money through this turbulent summer according to Portfolio Adviser statistics. The 10 per cent that are in positive territory are in lower risk assets such as gilts, gold, corporate bonds, absolute return funds and some commercial property funds.

An area which may surprise some of you is Japan; the Legg Mason Japan fund managed by Hideo Shiozumi has returned 13.52 per cent between July 1 and August 19. Admittedly, this is very much the exception to the rule.

However, one type of investment with an exposure to equity markets which has not been detrimental to investors in recent times is the structured product.

What are structured products? At their most basic, structured products promise to protect some or all of the money you invest while providing some growth on your investment. They are fixed-term products which mean you have to be prepared to lock-in your money, often for five or six six years.

The investments are structured by leading investment banks which allow more product innovation than, say, with OEICs or unit trusts. Growth plans often offer geared or accelerated returns.

How do the products work? They often have simple aims to suit different investment objectives but they involve some complex financial tools to help achieve them. They have two component parts: to protect all or part of your investment, the “safety net” and to provide the growth paid to you when the product matures, or the income paid out during the term.

The bulk of your investment is used to provide a safety net which ensures that you get all or part of your money back at the end – capital protection.

Some plans offer 100 per cent protection i.e. the full return of investor’s capital at the end of the term while others may offer “downside” or “soft” protection to limit potential losses should markets fall by typically 50 per cent in the current environment.

The capital protection element takes the form of a zero coupon bond, a form of corporate IOU. The bond pays no interest but promises to pay back a larger, set amount. The quality of the bond, and thus the safety net of the investment, depends on the ability of the counterparty to repay the bond at the end of the term. So, knowing who the counterparty is, rather than just attractive headline rates of return, is vital – especially in the current climate.