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Q1 2021 Maturity Results - 21/04/2021

Josh Mayne, Lowes Financial Management

One year on from the outbreak of the coronavirus pandemic, we are able to reflect on what has ultimately been the best performing period for the sector over the course of the last twelve months. Consistent with the accelerated vaccination scheme and subsequent steady easing of lockdown restrictions, this article is written with a sense of optimism looking ahead and should reaffirm the credibility of structured products as an investment option – even during a pandemic.

At the beginning of January 2021, the FTSE 100 Index was at 6,571.88 – over 1,000 points below its level a year earlier. Over the first quarter of 2021 the index fluctuated between a low of 6,397.24 and a high of 6,903.61 before closing on 31st March at 6,713.63, representing an increase of 2.16% across the quarter.

Despite markets remaining lethargic in their return to pre-pandemic levels, Q1 2021 facilitated the most retail structured product maturities in a three-month period since the corresponding period in 2020.

94 plans matured during Q1, which is four more than in Q3 and Q4 2020 combined. 76 plans successfully matured with a gain, 15 returned capital only, and three plans matured realising a capital loss. 16 Lowes ‘Preferred’ plans matured with all but two retuning a gain.

All Products Lowes 'Preferred' Not 'Preferred'
Number of maturing products 94 16 78
Number returning a positive outcome 76 14 62
Number returning capital only 15 2 13
Number returning a loss 3 0 3
Average total gain 14.32% 27.16% 11.69%
Average term (years) 4.08 4.35 4.02
Average Annualised Return 5.06% 6.44% 4.78%
Average Annualised Return Upper Quartile 8.83% 11.39% 8.21%
Average Annualised Return Lower Quartile 0.15% 1.63% -0.09%

Q1’s maturities produced an average annualised return of 5.06% across an average term of 4.08 years; Lowes ‘Preferred’ plans outperformed the sector’s average annualised returns by 1.38%, albeit over a slightly longer average term of 4.35 years.

Whilst further into this review we discuss the best and worst performing maturities to occur in the quarter by reference to annualised returns achieved, those maturing products that lie in the middle range include many of the most impressive. The quarter witnessed the maturity of three Investec/Lowes 8:8 Plans (issues 1,7 & 8) and these, together with many others have significantly out-performed the underlying – most commonly the FTSE 100. The table below shows the performance of the Lowes ‘Preferred’ structured products most commonly held by our clients, which matured in the first quarter of 2021. Beyond the Morgan Stanley deposit, which achieved its maximum potential of 30% interest because the FTSE 100 was moderately higher over the six years, and the Hilbert, high risk, share linked plan which only ran for six months, the others achieved annualised returns of between 5.7% and 8.1% over terms of 2,3 and 4 years, despite the pandemic induced market fall.

Q1 2021 maturities most commonly held by Lowes clients...

Provider Maturity Date Underlying Term (Years) Underlying Change Plan Gain
Morgan Stanley 14/01/2021 FTSE 100 6 6.47% 30% (1)
Meteor 10/03/2021 FTSE 100 4 -8.41% 25%
Focus 17/03/2021 FTSE 100 4 -8.92% 25%
Augere 23/03/2021 FTSE 100 3 -3.22% 19.5%
Walker Crips 23/03/2021 FTSE 100 3 -3.22% 19.8%
Investec 08/03/2021 FTSE 100 3 -6.72% 22.5%
Investec 28/01/2021 FTSE 100 2 -3.27% 16%
Investec 11/03/2021 FTSE 100 2 -5.52% 17%
Hilbert 18/03/2021 3 Shares 0.5 2.12% (2) 8.5%

(1) Deposit based (2) Worst performing share (Vodafone)

The three loss making plans in the quarter were term contacts paying a regular income, with capital returns derived from the performance of a basket of shares on a ‘worst of’ basis. Such plans are inherently riskier than contacts linked to single indices such as the FTSE 100 or EURO STOXX 50. To reaffirm, no Lowes ‘Preferred’ plans realised a loss for investors.

Q1 2021 worst performing maturities...

Plan Name Income Paid Capital Reduction Equivelant Annualised Return Worst Performing Share
FOCUS FTSE 4 Quarterly Income Plan March 2015 30.81% -54.59% -4.42% Standard Chartered plc (down by 54.59%)
FOCUS FTSE 4 Quarterly Income Plan February 2015 36.8% -52.01% -2.71% Imperial Tobacco (down by 52.01%)
Meteor FTSE 5 Monthly Income Plan February 2015 43.2% -49.83% -1.19% Standard Chartered plc (down by 50.17%)

The top quartile of Q1 maturities returned an average annualised return of 8.83%, across an average term of 4 years. The best performing of these are summarised as below…

1. Hilbert Investment Solutions Kick out Series 3 Stock Defensive Autocall Issue 5. This ‘Preferred’ plan, linked to the performance of a basket of shares, matured early after six months triggering the return of investors' original capital in full, in addition to a gain of 8.5% - an annualised gain of 17.88%.

2. Investec Defensive Enhanced Returns Plan 4 - EURO STOXX 50 Option. This ‘Preferred’ plan matured after 6 years, returning original capital in full in addition to a gain of 82%, despite the Euro Stoxx 50 being up by just 10%. This plan realised an annualised return of 10.49%.

3. Meteor FTSE Kick Out Plan March 2020 (Citi). This plan matured early on its first anniversary, returning original capital in full in addition to a gain of 10.25%. This plan struck immediately after the market crash in March 2020 and as such benefited from a 22.25% rise in the FTSE 100 Index.

Consistent with our findings disclosed in Lowes’ Retail Structured Product Sector Review of the Decade 2010 – 2019, the most common underlying was the FTSE 100 Index, accounting for 59.57% of maturities in Q1. No FTSE 100 linked contracts realised a capital loss, though 7 did fail to mature with a gain as a function of the lethargic hangover from the March 2020 market crash.

In our Q3 2020 review we referred to the introduction of a new index designed specifically for structured products – the FTSE Custom 100 Synthetic 3.5% Fixed Dividend Index (FTSE CSDI). Prior to March 2021 the only counterparty offering products on the FTSE CSDI was Morgan Stanley, however we are pleased to see Citigroup Global Markets Ltd and Goldman Sachs now offering the index as an underlying for retail structured products. Last year we stated our expectation for the index becoming a staple within the sector over the coming years and we expect that, once fully up to speed with the index, most advisers will concur. If you would like to arrange a training session about the index, for you and your team, please don’t hesitate to contact us and we will help.

The latest FTSE CSDI linked product is the Mariana 10:10 Plan May 2021, backed by Citigroup. Typically, the Plan offers three capital-at-risk investment options with a maximum investment term of 10 years, though the ability to mature early if the relevant criteria are satisfied on any anniversary from year two onwards. For more information on the Mariana 10:10 Plan May 2021, please refer to the product literature which can be accessed here.

Structured investments put capital at risk.

Past performance is not a guide to the future.

Disclosure of Interests: Lowes has provided input into the concept, development, promotion and distribution of the 10:10 Plan. The provider’s charges/fees are built into the terms of the investment - Lowes has a commercial interest in the 10:10 Plan as a result of its involvement in its development and promotion. All Plan returns are stated after allowing for the provider’s charges/fees. Where Lowes is involved in advice on or the intermediation of this investment to retail clients, it will not receive any payment from Mariana for its input.
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