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Topics: structured products| Ian Lowes| FTSE 100
Structured product investors with investments maturing this month are one group unlikely to suffer capital losses from the recent market volatility, according to comparison site StructuredProductReview.com.
Ian Lowes, founder of Structuredproductsreview.com which lists most products marketed through IFAs over the last 10 years, said none of those maturing in August will result in capital losses, although gains may be wiped out.
"The market fall is having an impact on potential returns for maturities but from our initial observations the protections on the contracts mean no plan is maturing at a loss," he said.
"This is not a good time to have a structured product maturing as some maturing this month will see gains being wiped out but investors have not suffered losses."
Lowes said despite the FTSE's recent plunge the market has not fallen steeply enough to breach the barriers of any forthcoming maturities.
Deposit-based and capital protected structured products will - subject to counterparties not going bust - give investors at least a return of capital, he said.
Capital at risk products are also likely to fare well, Lowes said.
The Barclays 5-year FTSE super tracker, for example, matures on 14 September, giving gains from any rise in the index over the term, with the starting level of the index at 5,877. If the FTSE falls over the period no gains are made but investors will not suffer losses unless Barclays goes bust or the FTSE falls to 2,939.
"The barriers are very much intact meaning these plans will return capital as a minimum - you would need a very severe market fall to trigger the barriers," said Lowes.
Another implication of the market crash is kick-outs are unlikely to mature - but this could be advantageous in the longer term, he added.
"Kick-outs may not kick out this year but as the coupons are cumulative when they do mature they should have better gains," he said.
Lowes said it is "business as usual" for structured products and the current climate presented good opportunities.
"Buying a structured product now means you are buying at a lower position and it also means your barrier is much lower than you thought it was going to be."
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Better than unit trusts
I did a quick experiment. I got the price of a typical unit trust, Invesco Perpetual UK Growth, and got a price 4 years ago yesterday (couldn't get 5 years). Suppose, 4 years ago, someone invested £5,000 in InvPerpUKGrowth and £5,000 in a FTSE 100 structured product offering the full FTSE 100 growth over 4 years, with 50% soft protection. Value of InvescoPerp as of close yesterday - £4,132.50. Value of structured product maturing yesterday - £5,000. OK, with the £5,000 invest in InvescoPerp UK Growth... I wouldn't advise it though. In 5 years it could be worth even less...
Posted by: Ken Durkin
Depends which UT
I just did the same analysis with Invesco Perpetual Income and High Income - up 11% and 12% respectively over 5 yrs, having been up 20-30% each a matter of days ago (as were the SPs in fairness). The point is, the markets WILL at some point bounce back and it's crucial that investors can choose when to take their money out of the market.
Posted by: Richard Taylor
Tactical Investing...a mugs game
Surely the point of equity investing is that investors should be in for the medium to long term and not trying to predict when to be in and when to be out of the markets. Tactical investing has been proven by many investment scholars to be a fools game and that efficient asset allocation will deliver the vast majority of any portfolios returns over the period. Structured Investments are there to deliver definition around the upside and the downside and there will always be a trade off. Surely the question should be around the efficient mix of investments a client should hold to deliver the required investment objective instead of trying to pick the next best product or investment or indeed when to buy it. Any capital protection is simply a bonus when markets plummet.
Posted by: Gary Dale
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Product Flaw
Would you agree to buy a large portfolio of shares and agree in advance to sell them on a wet Friday in 36 months time?,Probably not. This is the flaw in most structured products which leads me to avoid them.
Posted by: P Kerans