Manufacturing Growth

At a time of low interest rates and hence low future growth and returns, investors who are looking for above-average prospects have to seek out those investments which offer higher gains. However, in many cases, the securities that offer high growth often involve hard to evaluate uncertainties on political, technological, economic, and social grounds. In mature economies, above-average prospects tend to be concentrated in particular industries, for instance, technological, media, and telecoms. Investments in emerging markets, while they offer high prospective growth, can suffer from a variety of country specific problems. An alternative is to use financial engineering techniques to manufacture growth securities that have the desirable above-average growth attributes but without the assessment problems of many existing high-growth investments. Using the principles of financial engineering it is possible to create securities that provide the required level of expected reward without the uncertain bets on technological developments or emerging market economies. Financial intermediaries are well placed to provide such synthetic growth securities since they can benefit from scale economies in the manufacturing process.