2020 and its all-encompassing hysteria has proven to be a relentless challenge, the extent to which very few in the industry were able foresee back in January – and its only two thirds through. In fact, six months since the initial lockdown was announced, the threat of another is looming large as we venture into the winter months.
However, as with any challenging period in life, its important now more than ever that we take a chance to appreciate the positives - otherwise, what is the point? It is with this sentiment that we are keen to provide you with a reason to be celebrate in spite of such unprecedented times; finally, something to cheer…
This month, September 2020, marks the fifth birthday of a pioneer of the UK retail structured products sector - the Mariana Capital 10:10 Plan, an autocall capital-at-risk structured investment with an extended maximum investment term of ten years.
Pioneering in its ten year maximum investment term, the 10:10 Plan was influential in bringing about a wholesale change across the UK sector – the increasing of the maximum term offered by autocall plans; in 2015 just 3.59% of issued autocall contracts had a maximum term of over 6 years – all of which were 10:10 plans. In the opening eight months of 2020, more than three quarters of issued autocall plans offered a maximum term of more than 6 years, with half of all plans being between 8 and 10 years . The logic behind the longer maximum term was that it provided a safety net for investors in that there would now be a prolonged period to ride out a sustained bear market, or unexpected falls in the performance of the underlying.
Clearly in 2015 we understood the significance of this feature, however events in 2020 have shone a light on the fundamental benefit of such a safety net. As a direct result of the Coronavirus inspired market nosedive this year (FTSE 100 Index down 24.8% in Q1) , many autocalls, including a number of 10:10 Plans, did not see their underlying indices reach their respective kick-out reference levels and so will subsequently continue onto their next observation point. The difference is however that ten-year plans have longer to observe a market recovery, all the while increasing the ‘snowball coupon’ achievable on maturity. These plans are thereby more likely to remain unsusceptible or ‘immune’ to effects of a ‘corona crash’ and dare we say, even ultimately benefit when compared to long-only market-based investment. We hope that the sector will continue to follow suit in regard to the average maximum investment term, working towards a form of herd immunity.
Lowes worked closely with Mariana Capital in the concept and development of the 10:10 Plan and now, five years and 40 tranches with 111 individual options later, we are able to reflect on what we believe to be a standout product in the sector…
Since the first 10:10 maturity in October 2018, 31 options have matured returning investors an average annualised return of 8.68% across an average 2.97 years. Three options were outside of the norm, linking the return to the performance of more than one market index (the FTSE 100 Index and Euro Stoxx 50 Index); if we remove these, we see that the twenty eight FTSE 100 only linked options returned an average of 8.43% over an average duration of three years. At the time of writing, 81 options remain in force with the plan’s extended maximum investment term allowing for a comfortable number of remaining early maturity opportunities – adding an additional coupon to the potential gain for every year the plan has been in force.
|FTSE Linked 10:10 Maturities||All FTSE Linked Capital-at-Risk Autocall Maturities|
|Number of maturing products||28||164|
|Number returning a positive outcome||28||164|
|Number returning capital only||0||0|
|Number returning a loss||0||0|
|Average total gain (%)||27.26||17.46|
|Average term (years)||2.97||2.23|
|FTSE Linked 10:10 Maturities||All FTSE Linked Capital-at-Risk Autocall Maturities|
|Average Annualised Return (%)||8.43||7.43|
|Average Annualised Return Upper Quartile (%)||10.62||9.51|
|Average Annualised Return Lower Quartile (%)||6.61||5.77|
The 10:10 has proven to be a popular product in the retail space, with the numbers to support its traction. So, on the fifth anniversary of the first Plan, what better way to celebrate than to announce the latest edition of the series, the Mariana Capital 10:10 Plan November 2020.
With a lot of similarities to previous tranches, the key features of the Mariana Capital 10:10 Plan November 2020 can be summarised as below (please rely only on the product literature for a full description) …
- Option 1 will mature with a gain of 7.15% for every year the plan has been in force, providing the underlying Index is at or above a reducing reference level on any given observation date. The reference level for year two is 102.5% and this is reduced by 2.5% on each subsequent anniversary, down to 82.5% on the tenth
- Option 2 will mature with a gain of 9% for every year the plan has been force, providing that the underlying Index is at or above its Initial Index Level on any given observation date
- Option 3 will mature with a gain of 11.5% for every year the plan has been force, providing that the underlying Index is at least 5% above its Initial Index Level on any given observation date
- The first early maturity opportunity is on the second anniversary, and annually thereafter
- This is a capital-at-risk autocall plan with a 10-year maximum investment term
- Capital-at-risk protection barrier: 70% of the 6th November 2020 level of the Index
- Capital-at-risk protection barrier observation date: 6th November 2030 (only if not matured sooner)
- Counterparty: Morgan Stanley & Co. International Plc – all returns and return of capital subject to their continued solvency
- Investment start date: 6th November 2020
- Closes 30th October 2020 (14th October 2020 for ISA Transfers), but may become oversubscribed sooner
- Minimum investment is £10,000 only
- Investment method: ISA / ISA transfer, Individual, Joint, SIPP, Trust, Corporate, Partnership
- Individual / Joint gains taxable only if annual gains from all sources exceed £12,300*
However, there is one significant difference between this tranche and its’ predecessors – the underlying to which the performance is derived from. With the exception of one tranche of dual index plans in April 2016 (FTSE 100 Index and Euro Stoxx 50 Index linked), all of the previous issues the of the 10:10 have been linked to the FTSE 100 Index, a price only index (considering the price movements only) comprised of the largest 100 companies listed on the London Stock Exchange, by market cap. However, the performance of November 2020 Plan is derived from a new, custom made index in the FTSE Custom 100 Synthetic 3.5% Dividend Index (‘FTSE CSDI’).
The FTSE CSDI is a FTSE Russell created index, designed to closely replicate the FTSE 100 Index. It does this by replicating the total return of the FTSE 100 shares (including the benefit of dividends), and then takes a fixed 3.5% ‘dividend’ drawdown – the 3.5% is reflective of the 20-year dividend yield of the FTSE 100 Index.
The net result is that if dividends paid by the 100 companies are at an equivalent level of 3.5% of the FTSE 100 Index the CSDI performance will be very similar. The benefit of this is that because an element of guess work has been taken out of the equation and the dividend draw level is known from outset, the banks can facilitate better pricing in terms of coupons offered for autocall contracts, namely the 10:10 Plan.
For further detail on the FTSE CSDI, please refer the latest Mariana Capital 10:10 Plan literature, which will be available here upon release.
1. FTSE 100 Index data sourced from Investing.com.*Capital Gains Tax exemption is £12,300 per individual in the 2020/21 tax year. Gains up to this level are tax free. Where gains from all sources in a tax year exceed the annual Capital Gains Tax exemption, the excess is currently taxed at 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers. Tax rates and reliefs are subject to change. Structured investments put capital at risk. Past performance (actual or simulated) is not a guide to future performance. Disclosure of interests: Lowes has provided input into the concept, development, promotion and distribution of the 10:10. Lowes has a commercial interest in these investments as a result of its involvement. Where Lowes is involved in advice on these investments to retail clients, it will not receive benefit of any fees for its involvement, other than those fees payable by the client to Lowes.
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