Structured products weather market storm

Structured product investors with investments maturing this month are one group unlikely to suffer capital losses from the recent market volatility, according to StructuredProductReview.com.

Ian Lowes, founder of the comparison site, which lists most products marketed through IFAs over the past 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 added.

The Barclays five-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.”