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Quarter One Maturity Results

Colin Mclachlan - 26/04/2017

Structured Products, barring the odd exception, have been consistent performers for many years yet we believe many investors nationwide are missing out on the value that they could potentially add to their portfolios.

Here at Lowes we’ve been researching and utilising structured products in both, our own portfolios and our clients’ portfolios for over twenty years. We’ve analysed thousands of different new offers, issued warnings about some in the early days and benefited from many others. This substantial experience combined with the consistent results provided by structured products enable us to help our clients to achieve their savings and investment goals.

In the first quarter of this year, 174 structured products matured, fifty-two of which were ‘Preferred’ by Lowes Financial Management at the time of launch and as such, were utilised in our role as investment advisers. We are delighted that these have once again provided exceptional results for our clients.

Of the 174 maturities, 161 delivered a gain for investors, 6 returned capital only and 7 made a loss. All of the 52 investments ‘Preferred’ by Lowes returned gains.

The average annualised return of all the 174 products maturing in the first quarter was 6.71% over an average term of three and a half years. The top 25% made average annualised gains of 11.20% over an average term of two and a half years, while the bottom 25% made average annualised gains of 1.09% over an average term of 5 years and two months.

Comparing the sector results to the products that Lowes Financial Management preferred, we can see that, not for the first time, the structured product selection process at Lowes has paid off. The 52 preferred products provided an average annualised gain of 8.70%, outweighing the sector average by 1.99%. The top 25% made average annualised gains of 11.66%, while the bottom 25% made average annualised gains of 6.19%.

The FTSE 100 only linked maturities on average made annualised gains of 6.84% over an average term of three years and eight months. The top 25% delivered an average return per annum of 9.48% over an average term of three years, while the bottom 25% made 4.07% over five years.

Thirty four of the 52 ‘Preferred’ products were linked to the FTSE 100 Index only. These provided an average annualised return of 8.03%. With the top 25% delivering an average annualised return per annum of 10.11% and the bottom 25% returning 5.67% per annum, outperforming the sector averages.

Looking beyond the FTSE 100 only linked products, forty-two of the maturing products were linked to two indices being the FTSE 100 and either the Euro Stoxx 50 or S&P 500, and a further twenty-six were linked to other measures such as shares, commodities or other indices. Due to the greater diversity and risks there is a wider spread between the best and worst performing. The top 25% of Non-FTSE Only linked products produced an average annualised return of 13.32%, in comparison -3.60% for the bottom 25%. Lowes managed to mitigate this risk, with the top 25% of ‘Preferred’ Non-FTSE Only linked products providing average annualised returns of 13.62% and the bottom 25% returning 7.47%.

The two deposit plans which Lowes Financial Management preferred shone brightly, generating an average annualised return of 4.05%, over their respective six year terms. In comparison, the sector average was 3.35% per annum over five years.

The best performing maturity in the quarter proved to be the Cube Investing Oil Shares Autocall July 2021 which matured after 18 months on the 30 January 2017, returning a gain of 31.5%. This plan was linked to the potential fortunes of four companies in the oil sector, however the sector has had its moments. In January 2016, the price per barrel of oil hit a low of $29.42. The price had since recovered, increasing the profitability of all four companies, thus increasing the share price. BP Plc gained 18.72%, Royal Dutch Shell – Class A 17.13%, Total S.A. 3.76% and Exxon Mobil Corporation 2.23%.

The seven out of the 174 maturities that incurred a loss were a mixed bag. A fall in Platinum of 45.42% led to equivalent losses on three plans and a fall in the iShares MSCI Brazil Capped Index of 50.82% impacted another to the same degree.

The worst performing maturities in the quarter were the three options of the Gilliat UK Sector Leaders Kick Out – February 2011. Option one offered investors 12.5% provided the closing levels of the nine shares were at, or above their Initial Levels. Option two which offered 10% per annum contained a defensive feature of 5% and option three which offered a coupon of 7%, contained a defensive feature of 10%. All three has Tesco Plc as one of the underlying measurements. Amongst other things, key events which took their toll on the share price during the six year investment were the release of numerous profit warnings, partly due to the stiff competition from discounted retailers, such as Aldi and Lidl and the exposure of the accounting scandal, in which profits were incorrectly overstated. Tesco shares closed on the 28th February 2017 (Final Measurement Date) at 188.15, 53.45% below the Initial Share Price of 404.20, recorded on the 28th February 2011 and so these three plans suffered equivalent losses, returning just 46.55% of investors capital.

Whilst the quarter one results included some extremes, they yet again demonstrate that the sector continues to deliver attractive returns, whilst not exposing capital of most plans to undue risk. The results from the maturities of Lowes ‘Preferred’ products demonstrate that, as with any sector, appropriate product selection can yield very attractive results.

Quarter One 2017 Structured Product Maturities [Lowes ‘Preferred’ Products Results in square brackets]