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2021 Capital-at-Risk Autocall Maturity Review - 09/02/2022

Since their first introduction in 2003, capital-at-risk autocall contracts have grown to be the dominant product shape in the UK structured product sector both in terms of issuance and subsequent maturities. Throughout 2021 395 such plans matured, representing three quarters of total maturities. This is in stark contrast to 2020, when the effects of the market correction meant that such maturities were deferred; in 2020 just 87 capital-at-risk autocalls matured, with the majority deferring their maturity to subsequent observations, assuming adequate market recovery.

More than half of the maturing capital-at-risk autocalls in 2021 were linked solely to the FTSE 100 Index, all of which matured positively returning investors an average annualised return of 7.23% over an average term of two and a half years.

The remaining 168 were linked to more than one index or baskets of shares and of these 159 produced their expected gains, eight returned capital only and one resulting in a capital loss. These plans returned an average annualised return of 6.85%, across an average term of three and a half years.

Capital-at-risk autocall maturities in 2021. Source: Lowes’ Annual Performance Review 2022.
FTSE 100 Only Non-FTSE 100 Only
Number of maturities 227 168
Number returning a positive outcome 227 159
Number returning capital only 0 8
Number returning a loss 0 1
Average term (years) 2.47 3.49
Average Annualised Return 7.23% 6.85%
Average Annualised Return Upper Quartile 9.7% 9.56%
Average Annualised Return Lower Quartile 5.45% 4.16%

It remains that no FTSE 100 only linked capital-at-risk autocall contracts have matured with a loss in the UK retail sector, with over 1,200 of such plans having matured; just eight of these maturities have ever returned capital only.

All eight of the no gain no loss FTSE only linked maturities commenced prior to the financial crisis, with the FTSE 100 Index failing to recover prior to their final maturity dates, however the capital protection barriers remained in-tact. It is noteworthy that these eight FTSE only products had maximum durations of five, or six years, and had this been seven, or eight years, all but one would have matured positively, on or before the final anniversary.

Over the recent history of the sector we had enjoyed a general increase in the maximum investment term offered on autocall products, however in the last year or so, there have been 59 five year products released – the first since 2015! For a full review of this trend, and our view of it, please reference the Lowes Annual Performance Review 2022.

The only loss-making capital-at-risk autocall contract in 2021 was linked to the performance three FTSE 100 shares, and lost capital as a consequence of a 52.92% fall in Standard Chartered Plc throughout the investment term.

The chart above illustrates the difference between FTSE 100 only, and non-FTSE only capital-at-risk autocall maturities, by annualised return and actual investment term. No FTSE linked contracts ran for more than four years, and even then, it is likely that they would have matured on previous observations if it weren’t for the black swan event in the form of a pandemic.

A function of the risk return trade-off is that the higher the risk taken when investing, the great extreme of return available – be it positive, or negative. In this instance, the additional risk is acquired through the selection of the underlying, be it through correlation risk where more than one is used, or increased volatility.

Despite a very small minority of unfavourable maturity results from higher risk trades, 2021 represented another successful period for the autocall subsector, and the structured product sector more generally. For further analysis of the products maturing throughout 2021, please reference the Lowes Annual Performance Review 2022.

Structured investments put capital at risk.

Past performance is not a guide to future performance.
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