Ian Lowes, founder of CompareStructuredProducts.com - 29/10/2014
Structured products distributed through the IFA market that matured in the third quarter of 2014 did so returning an average annualised gain of 7.59% over an average term of 4 years, according to the latest research from CompareStructuredProducts.com.
This is nearly 20% higher than the returns of maturing structured products in the comparative quarter last year, where the average annualised return was 6.37% per annum over an average term of 3 and a half years.
The research team at CompareStructuredProducts.com collate maturity results annually, quarterly and monthly to show the attractive returns that these investments can deliver. Current open plans can be found on the website, alongside valuable information on counterparties, other key product information and latest news.
96% of products, that is 129 products, made a gain for investors. Against these positive results, 5 returned capital and only 1 made a loss.
All of the FTSE 100 only linked products matured with a gain. This made up the majority of products, with 98 out of the 129 products linked to this index. Given the strong performance of the UK index, these positive results are understandable. It should be appreciated that these results have been achieved whilst protecting investor’s capital from all but the most extreme events.
The products linked only to the FTSE 100 made an average annualised gain of 7.66% over an average term of 4.11 years, while the products linked to a variable outside the FTSE, or the FTSE as well as another measurement, made 7.38% over 3.75 years.
The average total return of the products that matured in the third quarter of this year was 32.93% over an average term of 4 years. Looking at the top quartile of product maturities, the average annualised return was 12.26%, while the bottom quartile was 3.38%. Many of the best performing products were growth plans, as products that matured in the third quarter of this year struck in 2008 and 2009 when volatile market conditions led terms to be attractive. The subsequent market recovery has led many auto-call (kick-out) plans to already have matured. Growth products were coming to the end of their fixed term.
The 83 capital-at-risk products that matured did so with an attractive average annualised gain of 9.22% over an average term of 3.52 years. The range of returns is shown by the top quartile of products making an average annualised return of 13.22%, while the bottom quartile made 5.64%. The average total return of capital-at-risk products was 37.36%.
The best performing product overall was a capital-at-risk FTSE linked investment, the Barclays 5-year Super Tracker - Dual Option (May 2009 Edition) - UK Option. This offered investors a growth payment at maturity equivalent to 4 times any rise in the index, subject to a maximum return of 100% of the investor's original capital investment. It reached this limit, returning 100% per cent over a term of 5 years. This equates to an average annualised return of 14.86%.
The 31 capital ‘protected’ products made an average annualised return of 4.73% over an average term of 5.33 years. The top 25% of products delivered an average annualised return of 7.6%, while the bottom quartile made 2.03%. The average total return was 27.79%.
The best performing capital ‘protected’ product was the Barclays Protected FTSE Plan (July 2009 Edition). This five year plan offered the potential for growth at maturity equivalent to two times any rise in the index, subject to a maximum gain of 50% of the original capital investment. The plan also provided the potential to lock-in a 25% minimum return at maturity, providing the index closed at 125% or more of the starting index level on any day during the final year of the investment term. This plan matured returning investors' original capital in full, plus a gain of 50%, which translates to an average annualised return of 8.44%.
The deposit-based structured products that matured in the third quarter made an average annualised return of 5.34% over an average term of nearly 4 years. This was to a great extent due to the vast majority of these products being from Investec Bank, which matured with attractive returns. The top quartile of deposits made an average annualised return of 7.13%, while the bottom quartile delivered a still attractive 3.35%, considering investors’ capital was protected. The average total return on deposits was 23%.
The best performing deposit was the Investec Guaranteed 5-year FTSE 100 Plan, which offered the potential for a fixed growth payment at maturity equivalent to 50% of the investor's original capital investment, providing the final index level was higher than the plan's starting level. The total return was 50%, which translates to an average annualised return of 8.45%.
The best performing non-FTSE linked product was the Meteor Triple Index Kick-Out Plan August 2012, which offered the potential for a 15.25% gain for every year held, payable from year two onwards, provided the FTSE 100, Euro Stoxx 50 and S&P 500 indices close at, or above, their respective initial levels on any annual observation date. The investment matured early on its second anniversary, on 2 September 2014, returning investors' capital in full, plus a gain of 30.5%. This equates to an average annualised return of 14.2%.
The worst performing product, which shows the trade-off between risk and reward, was a plan linked to commodities. The Meteor Galaxy Protected Commodities Plan 6 - Super Growth Option offered the potential for growth at maturity equivalent to 200% of any gain in the basket of 8 commodities, uncapped. This six-year plan matured returning 84.44% of investors' original capital, i.e. a loss of 15.56%. This made an average annualised loss of 2.8%. Whilst none of this series from Meteor have performed well given the performance of commodities over the term, this is the worst performing maturity of this series to date.
The fact that only one product matured with a loss shows the sceptics that structured products add diversification to portfolios and can offer attractive returns with a degree of protection. Now, there are products on the market that can return a gain even if the index falls over the term up to a pre-defined level. These defensive structured products and their super-tracker cousins offer the potential to massively outperform the market, as well offering protection from all but the most severe market falls. With defined returns in all defined market circumstances structured products are a good alternative to traditional passive investments.
The range of products currently available is exposed to approximately ten major counterparties and this enables investors to diversify the credit risk in their portfolios. Some products are exposed to a range of financial institutions rather than just one and this can further serve to reduce the risk of catastrophic loss in the unlikely event of a bank failure.
Past performance is not a guide to future performance.