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Morgan Stanley’s Marvelous Maturity Medley - 25/03/2021

By Josh Mayne

March 2021 was not just the last month that saw Investec, as a provider offer product to the UK retail market but was also the month when the last of the plans issued by Morgan Stanley, as a provider matured in the market. In this article I examine the latter’s history and performance.

First appearing in the UK retail structured product market back in 2003, Morgan Stanley ultimately issued 268 products via IFAs, covering structured deposits, capital-at-risk and capital protected products. Over half of Morgan Stanley’s plans were capital-at-risk (53.25%) in structure, with capital protected and structured deposits accounting for 41.41% and 5.22% of issuance, respectively.

The first Morgan Stanley (MS) plans, issued in Q1 2003, were a suite of eight, rather convoluted, FTSE 100 linked sub plans dubbed Morgan Stanley Optimiser range. Three months later the first Protected Growth Plan was launched and this was the first to mature, three years later returning capital plus 25%.

The final tranche of retail products issued by MS as a provider came to market in 2015 and the last of these matured at the end of their six-year terms in March 2021. The deposit amongst the last three returned no interest, the growth plan returned a 16.69% gain and the income plan paid 6.75% per annum in addition to returning all of the original investment. Considering that over their six-year term the FTSE 100 Index, to which all three were linked, was down by 5.16% these were pretty respectable results. Indeed, the overall returns of all 268 MS products were very respectable, with not a single one resulting in a capital loss despite many commencing up to and around the financial crisis and some maturing at the height of the Covid pandemic.

The average annualised return of all MS maturities was 6.05% across an average term of four and a half years. A more detailed breakdown of Morgan Stanley products’ maturity performance is as below.

Capital-at-Risk Capital 'Protected' Structured Deposits
Number of maturing products 143 111 14
Number returning a positive outcome 138 83 8
Number returning capital only 5 28 6
Number returning a loss 0 0 0
Average term (years) 3.96 5.11 5.68
Average Annualised Return 8.04% 3.98% 2.17%
Average Annualised Return Upper Quartile 12.31% 8.58% 4.53%
Average Annualised Return Lower Quartile 4.21% 0.00% 0.00%

229 of the 268 plans (85.45%) achieved a gain for investors, with the balance still successfully returning investors’ original capital – no Morgan Stanley structured product ever matured resulting in a capital loss.

Of the 39 plans that failed to achieve a gain, 22 struck pre-2008 and suffered as a result of the financial crisis crash. Similarly, a further 9 matured post February 2020, meaning they suffered as a consequence of the pandemic-induced market fall. The remaining 8 maturities that returned capital only struck between 2008 and 2009 and were linked to the performance of a range of global developed and emerging market indices – namely the Hang Seng Index, MSCI Taiwan Index and S&P BRIC 40 Index.

The three top performing MS maturities are summarised below.

Plan Strike Date Term to Maturity Index Link Movement in Index Final Gain Annualised Return
FTSE Kick Out Growth Plan 14 14/12/2011 3 years FTSE 100 +15.2% 65% 18.13%
FTSE Kick Out Growth Plan 15 07/02/2012 3 years FTSE 100 +16.07% 60% 16.91%
FTSE Kick Out Growth Plan 13 26/10/2011 3 years FTSE 100 +14.59% 55% 15.7%

The top 20 MS maturities retuned an average annualised return of 14.23% over an average term of 3.17 years; all but two of these were identified as ‘Preferred’ by Lowes on at the time of launch. Lowes had noted 129 of the 268 plans as ‘Preferred’ and these outperformed the average of all maturities, returning an average of 7.2% per annum over an average term of 4.52 years.

Whilst there were many exceptional offerings from Morgan Stanley over the years and a number of welcome market innovations, to this day they remain the only provider, or counterparty to have issued a UK retail product linked to the performance of the FTSE 250 Index. That capital protected product offered 110% of the rise in the index, with no loss if it fell over the six-year term. The plan ultimately matured with a 66.9% gain.

Morgan Stanley remains a prominent counterparty to structured products in the retail space, like the 10:10 Plan but the final chapter on the bank, as provider of its own structured products has now come to an end. As the results show, it leaves a respectable legacy from a very positive participation in the UK retail financial services sector having served IFAs and their clients very well.

Structured investments put capital at risk.

Past performance (actual or simulated) is not a guide to future performance.
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