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2020 Q1 Sector Review

CompareStructuredProducts.com - 22/04/2020

Josh Mayne, Lowes Financial Management

Describing the decade’s inaugural quarter as a whirlwind may be something of an understatement…

The FTSE 100 Index started the year at a strong 7,604 following a post-election market rally – later dubbed ‘Boris Bounce’. The Index maintained its strong position throughout January with an average level of 7,558. Although it was during January that stories regarding the outbreak of the coronavirus began to surface with ever increasing frequency and concern. The outbreak was declared a Public Health Emergency of International Concern on 30th January, and the first COVID-19 cases in the UK were confirmed the following day.

Subsequently, coronavirus-induced panic started to fester worldwide causing major economic disruption. February witnessed the worst week for stock markets since the Global Financial Crisis; the FTSE 100 Index fell by almost 1,000 points in just one week, scraping levels not touched since the 2016 Brexit referendum hangover.

Throughout March investment markets around the world took a beating as the virus continued to claw its way around the globe, to devasting effect. With the world’s death toll growing exponentially, the WHO declared the outbreak a pandemic on 11th March. The FTSE 100 Index fell by 10.9% the following day, this being the worst single day since the ‘Black Monday’ crash of 1987. The average level of the FTSE 100 Index in March was just 5,741 – more than 1,900 points lower than its average in the quarter’s opening month. From start to finish the FTSE 100 Index fell by 24.8% in Q1, closing at 5,671. ¹

Nonetheless, the retail structured product sector, on the whole, has performed relatively well. A total of 108 products matured between January and March providing investors with an average annualised return of 5.7% over an average term of approximately three and a half years.

Of the 108 maturities, 100 matured with a gain, predominantly in the early part of the quarter admittedly, five returned capital only and the remaining three plans three plans matured with a capital loss for investors.

The table below offers a more detailed breakdown, as well a comparison between the performance of Lowes ‘Preferred’ plans against ‘non-Preferred’ plans; a reminder, ‘Preferred’ plans are those that we believe to have the most attractive terms at the time of launch.

Q1 2020 maturity results. Source: CompareStructuredProducts.com

As evident, the average annualised return of the Lowes ‘Preferred’ plans was 6.84% compared to the 5.7% from the sector as a whole.

In terms of individual plans, this quarter’s top hitters can be summarised as below:

1. Hilbert Investment Solutions Kick-out Series: 3 Stock Defensive Autocall Issue 1. This plan matured early after six months (12 February 2020), returning investors’ original capital in full, in addition to a gain of 10.075%.

2. Walker Crips UK & Europe Kick-out Plan Issue 1 (MS008). This plan matured early on its first anniversary (10 February 2020), returning investors’ original capital in full, in addition to a gain of 14.91%.

3. Dura Capital Citi FTSE 100 Autocall Plan 19. This plan matured early on its first anniversary (30 January 2020), returning investors’ original capital in full, in addition to a gain of 11.25%.

Although, not all plans performed as favourably. The following three plans matured resulting in a capital loss for those invested in them:

1. Meteor Crude Oil Kick-out Supertracker Plan March 2015. This plan matured returning just 25.11% of investors' original capital due to the unfavourable performance of the S&P GSCI Crude Oil Excess Return Index.

2. Meteor FTSE 5 Enhanced Quarterly Defensive Plan March 2014. This plan matured returning just 28.31% of investors’ original capital as a direct consequence of Marks & Spencer’s share price falling 71.69% over the investment term.

3. Meteor FTSE 5 Enhanced Quarterly Defensive Plan January 2014. This plan matured returning just 38.5% of investors’ original capital, again, as a consequence of its worst performing underlying share, with Marks & Spencer’s share price falling 61.5% over the investment duration.

Share linked plans are inherently riskier than those liked to a mainstream index and here we can see them amongst the best and worst performing in the sector.

We would like to reaffirm that neither of the plans that made a loss were granted ‘Preferred’ status by Lowes.

As previously mentioned, the FTSE 100 Index, and equity markets more generally, have taken a pummelling this quarter. Resultantly, many plans that had the opportunity to ‘kick-out’ simply saw their potential maturity deferred to a later date when the potential gain will be higher.

For example, Option 2 of the Mariana Capital 10:10 Plan March 2017 had the potential to mature on the Plan’s third anniversary but didn’t due the fall in the FTSE 100 Index. Let’s say it takes four years for the FTSE to get back to where it was when the plan commenced – it will mature on its seventh anniversary with a 67% gain.

More details latest tranche of the 10:10 and how to invest are available here.

These are most certainly unprecedented times. With the country in lockdown, Q2 will see us somewhat hesitantly venture into the unknown, though we hope this review provides you with some reassurance that the retail structured products sector remains fit and healthy.

In the meantime, stay home and stay safe.

1. FTSE 100 Index data sourced from Investing.com