Ian Lowes - 17/10/2018
Today (17th October) saw the first issue of the now very popular 10:10 Plan mature with a perfect result. The ‘Mariana 10:10 Twin Option FTSE Kick-Out Plan’, matured with gains of 30% and 37.5% for Options 1 and 2 respectively. Over the same investment term the FTSE 100 Index to which the plans were linked posted a 10.69% gain.
These plans were the first of many issues of the 10:10 Plan (issue twenty-four was launched in October 2018) and of Lowes’ foray into product cooperations, including the Investec/Lowes 8:8 Plans (now in its sixth issue). Lowes cooperations of this nature have now been utilised by hundreds of advisers for thousands of clients nationwide.
It’s about time… The 10:10 Plan introduced the concept of extending the maximum duration of autocalls from the then typical six years to ten years, thereby providing more opportunities for the investment to mature with a gain, whilst repositioning exposure to market risk. Since then, the wider market has adopted the principle to the extent that maximum durations of seven, eight and ten years are now commonplace. While the extend maximum term has not proved necessary for the first issue of the 10:10 Plan and hopefully will not prove necessary for any of the subsequent issues, it provides piece of mind that, in the event of a significant market downturn, these investments have a greater chance of ultimately maturing with very respectable gains than their six-year term counterparts.
Obviously, anyone investing in a stockmarket linked investment is hoping that the market will rise and these investments will generate attractive, pre-determined gains if that occurs. But as anyone knows, stockmarkets do not rise in straight lines. The longer duration autocalls offer the potential for a snowballing coupon to accumulate in periods of prolonged market stress and allow an extended period of time for market recovery.
The counterparty to the first issue was Société Générale and Option 1 offered a potential return of 10% per year held, maturing on the first anniversary, from the third onwards that the FTSE 100 Index closed at, or above the level recorded at the beginning of the term (6378.04). Option 2 offered a higher 12.5% for each year held as it required the FTSE 100 to close 10% above the starting level on any anniversary from the third onwards.
As the FTSE 100 closed 10.69% higher on the third anniversary a maturity of both options was triggered. Something we and all investors are no doubt delighted with.
The current issue of the 10:10 Plan has Morgan Stanley as counterparty but the options differ from the first issue:
For Option 1, rather the FTSE needing to be at, or above the initial level as per the first issue, for the November 2018 issue, to trigger a maturity the index needs to be 2.5% higher on the second anniversary, the same or higher on the third, at or above 97.5% of initial level on the fourth, with the maturity trigger falling by a further 2.5% each year to 82.5% on the tenth if a maturity wasn’t triggered sooner. The potential coupon for Option 1 of the November 2018 issue is 8.17% for each year the plan has been in force.
Where Option 2 of the first issue would mature on the third anniversary onwards if the FTSE 100 had risen 10% or more, under the November 2018 issue it will mature from the second anniversary onwards if the FTSE is 5% higher. The potential coupon is 12.33% for each year the plan has been in force.
All options and issues of the 10:10 Plan expose capital to the risk of loss which could arise in the event of an early surrender other than as a result of a triggered maturity and will arise in the event of counterparty bank failure or, if the FTSE performance is such that a positive maturity is not triggered, and the index is more than 30% lower after ten years.
Lowes 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 Plan as a result of its involvement in its development and promotion. All Plan returns are stated after allowing for these charges/fees. Where Lowes is involved in advice on or the intermediation of this investment to retail clients, it will not be paid any fee for its input but the provider will instead donate equivalent funds to the Charities Aid Foundation (Registered Charity Number 268369) which will then be allocated to various other UK Registered charities at the direction of the Lowes Charity Committee, the annual report for which is available on request. The aim of developing Plans in co-operation with providers, with Lowes input, is that they should be amongst the best available in the market – and, as such, be granted ‘Preferred’ status, on their merits. Lowes has robust systems and controls in place to ensure that it manages any actual or potential conflicts of interests in its activities