CompareStructuredProducts.com - 21/11/2019
Over the last ten years the UK retail structured product sector has witnessed 1500 capital at risk, auto-call / kick-out maturities. Here, we take the opportunity to look at how these products fared.
The 1500 maturities, occurred between April 2009 and September 2019 and produced average annualised returns of 8.52% over an average term length of 2.09 years. 28 of the 1500 simply returned capital only with no gain and 23 plans matured with a loss, that leaves 1449 produced which matured with gains – 96.6% of all maturities!
The nature of all the plans in this milestone are similar in that they all put investors capital at risk (return of capital is linked to the performance of the underlying asset) and, they were all autocallable. Autocall structured products have grown significantly in terms of market dominance since their first introduction to the UK market and account for 68% of all products striking in 2019 so far.
Autocallable products are products that can automatically mature before their final observation date, if the underlying asset is at or above a pre-determined level. If early maturities are missed, the potential coupons accumulate year-on-year until the final observation date.
For the vast majority of the maturities the early maturity parameters were met meaning investors received their capital back, plus gains before the full term was up. The chart below shows how these maturities are distributed in terms of how long they were in force.
For 63 of the 1500 plans however, all early maturity opportunities were missed and at the final maturity date 12 of these triggered a positive maturity but 23 had breached their capital protection barriers and as such gave rise to a loss. One of these was linked solely to the Eurostoxx 50 Index only and the rest were either dual index, share or commodity linked. These, by definition, tend to offer higher potential coupons in compensation of the additional risks.
The correlation between risk and reward is further demonstrated when looking at the FTSE 100 Index only plans in comparison to all other plans.
Capital-at-risk autocall plan maturities
|FTSE 100 Only