Josh Mayne, Lowes Financial Management

This year stockmarkets have fallen to levels not seen since 2015, and it was around this time that we wrote an article for What Investment explaining how investors can “achieve positive returns in slightly falling markets” (WhatInvestment, 2015).

In the article, written by our colleague, Chris Brown explained investors’ psychological aversion to loss being somewhat heightened during volatile periods. During such periods investments that simply follow the market, such as tracker funds may be daunting for less optimistic investors. Chris outlined alternatives to mainstream passive investments that can generate positive returns, even under slightly negative market conditions - growth structured products.

Three ‘supertracker’ structured products were referenced. These offered a multiple of the FTSE 100 return from pre-specified reference levels. Such products often contain a defensive element, which allow for positive returns to be generated even in situations whereby the market falls over the investment term.

Given current market position, with the FTSE 100 Index down 13.75% from its opening level in 20201, it seems somewhat fitting to revisit this article and assess how these products are looking despite the market turmoil this year.

Plan Name Potential Growth at Maturity Inital Index Level Current Index Level (08/12/2020) Final Index Date Forecasted Growth Based on Current Index Level Gain if surrendered on 07/12/2020
Meteor FTSE Defensive Supertracker Plan November 2015 2 x rise in FTSE 100 Index above 80% of the Initial Index Level, capped at 60% 6118.28 6558.82 15/11/21 60% 40%
Soc Gen UK Defensive Growth Plan (UK Four) Issue 6 (Collateralised) 5 x rise in FTSE 100 Index above 90% of the Initial Index Level, capped at 66% 6334.63 6558.82 22/11/21 66% 34%
Investec FTSE 100 6 Year Defensive Deposit Plan 3 32% interest payment if the FTSE 100 Index is above 90% of the Initial Index Level, subject to 6 month averaging 6305.49 6558.82 23/11/21 32% 24.29%


With just less than a year remaining on all three plans, each contract is well above water, to the extent that based on current market levels each plan will return the maximum gain possible. The plans are set to return an average gain of 52.67%, despite the FTSE 100 Index being up by an average of just 4.92%.

This positive forecasting is reflected by the surrender values of each plan sitting comfortably above £1 per unit. Whilst we encourage investors to ignore the daily noise of the secondary market the positive valuations displayed here should provide a more positive outlook for the plans performances.

Whilst these payoff profiles are less common than they used to be, due to the increase in popularity of autocallables, they still offer a handsome return, not least under the circumstances by which the returns can be delivered; begging the question yet again, why not consider structured products? The sector has evolved to be something long-term investors should not ignore. Our extensive review of the last decade can be obtained at Lowes.co.uk/SPdecade

[1].FTSE 100 Index Data sourced from Investing.com

Structured investments put capital at risk.

Past performance is not a guide to future performance.
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StructuredProductReview.com
Last updated: 9th Dec 2020