CompareStructuredProducts.com - 05/12/2019
Structured products continue to gain ground in the adviser space thanks in part to increasing awareness helped by continuing to deliver consistent levels of performance, as shown in Lowes Financial Management’s review of the UK structured product sector 1 . Those looking for a simple to understand, tried and tested, defensively positioned, passive investment could do a lot worse than to consider structured products with multiple opportunities to mature, linked only to the performance of the FTSE 100 Index (FTSE 100 autocalls).
Whilst investing in any market linked investment is done on the basis of an expectation that the market will rise, investors must accept that this may not always be the case. All structured products typically include a degree of contingent downside protection against negative market movements. For structured deposits this is absolute, whereas for capital at risk products, if the early maturity conditions are not met by the final maturity date, original capital will still be returned in full unless the FTSE 100 has fallen by more than say 40% in the case of a six year product, or 30% for a product with a ten year maximum term.
Since 2009, no FTSE 100 autocalls have ever matured at a loss. According to Lowes’ StructuredProductReview.com database; as of September 2019, more than 1000 FTSE 100 only linked autocalls have now matured in the UK intermediary distributed retail market. These products were issued by more than 20 different banks, such as Barclays, Santander, HSBC, Morgan Stanley and Goldman Sachs. Of these 1000 maturities, two were capital ‘protected’ products, 98 were structured deposits (both designed to protect the original capital from any loss from market movements at maturity) and the remaining 900 were capital at risk products.
The returns achieved by these maturities are shown below, with the capital at risk products returning on average 8.13% per annum over an average term length of just under two years, and the deposits returning 5.08% per annum over an approximate average holding period of just under two and a half years. The two capital ‘protected’ products ran for six years and simply returned the original capital with no gain.
Results from the 1,000 maturing FTSE 100 autocalls from 2009 to September 2019