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100 10:10 Maturities

CompareStructuredProducts.com - 26/07/2023

All options of the Mariana 10:10 Plan July 2021 successfully matured on their first possible early maturity date (17th July 2023) making them the 98th, 99th and 100th 10:10 Plans to mature, doing so with annualised returns of 6.76%, 8.80% and 10.62% respectively. This brings us up to almost 5 years’ worth of maturities for the 10:10 Plans with the average annualised return from all 100 being 8.67% over an average duration of just short of three years. Over the same period the subsector had over 850 maturities, also all doing so positively however underperforming the 10:10 average annualised returns by 1.46% p.a.

Since the introduction of the 10:10 Plan there have been some moderate variation of differing shapes however since December 2018 the familiar three options of the 10:10 Plan have been:

Option 1 – Step down from 102.5% in year two to 82.5% trigger level in year 10

Option 2 – At the money throughout

Option 3 – 105% hurdle throughout

Prior to the market downfall sparked by the Coronavirus pandemic in 2020, 31 10:10 Plans had matured. What followed proved to be beneficial for the majority autocall products, demonstrated by the 10:10 below, in that a ‘pause’ in maturities from March 2020 to April 2021 meant that all plans that could have potentially matured during that period accumulated further coupon with most maturing a year later with a greater return.

Of the maturing 10:10s five global systemically important banks have been counterparty, with a sixth, BNP Paribas being introduced more recently.

One thing that has remained consistent since the birth of the 10:10 Plan is the 10-year maximum term with annual kick-out dates and a 70% end of term capital protection barrier. The barrier means that for a partial capital loss to arise from depressed market conditions, the FTSE 100 (or FTSE CSDI) would have to be lower than the potential maturity trigger level on every possible occasion, and more than 30% below the initial index level at the end of ten years.

UK retail structured products with a maximum 10-year term are few and far between and whilst the maximum term has not yet been required, we feel from the investor’s standpoint that a longer maximum term brings significant peace of mind. In the event of a severe market downturn occurs during the life of a plan, an extended term allows more time for the market to bounce back and for the plan to mature positively. There have been only eight capital at risk, FTSE linked autocalls that have failed to produce a gain and that number would have been nil if those plans had had 10 year terms.

We must acknowledge that there are a handful of 10:10 plans from 2016 and 2017 that are still yet to mature, the majority being Option 3 with a 110% hurdle. Obviously, the requirement for a 10% rise in the FTSE 100 meant that these plans had a longer expected potential duration, however as with all autocalls a longer duration results in more accumulated coupons, which in this instance are 11% -12.5% for each year. Whilst we remain optimistic that we will see these plans mature positively prior to their final maturity dates, an early surrender might appeal to some investors. Take Option 3 of the September 2016 10:10 Plan as an example. This needs the FTSE 100 to be at least 10% higher than the initial level of 6,894.6 on 4th September 2023 to trigger maturity on its 7th anniversary. If on this date the FTSE closes above 7,584.06, investors will receive an 84% gain on their investment, not an unreasonable return given that the Index only rose by 10% over the duration. If the maturity isn’t triggered then, there are three more years for it to do so, adding 12% to the total return each year. At the time of writing the investment can be sold realising a gain of 59% which whilst being someway short of the 84% potential in September is still a very respectable return given the investment climate that has prevailed. An early encashment fee of £200 would be payable if surrendered ahead of a triggered maturity date.

The Mariana 10:10 was created with input into the concept, development, promotion and distribution by Lowes Structured Investment Centre. Details of the current 10:10 Plan can be found here.

Structured investments put capital-at-risk.

Past performance is not indicative of future results.

Disclosure of interests: Lowes has provided input into the concept, development, promotion and distribution of the 10:10. Lowes has a commercial interest in these investments as a result of its involvement. Where Lowes is involved in advice on these investments to retail clients, it will not receive benefit of any fees for its involvement, other than those fees payable by the client to Lowes.