Max Darer, Lowes Financial Management, 08/11/2023
November and December are witnessing a host of 6-year maximum term capital at risk autocalls reaching their final observation date. Whilst capital protection barriers are not going to be breached, for these investments it is a case of make, or break as to whether they mature with significant gains, or just a return of capital.
The first week of November saw two such plans return capital only after the FTSE failed to close above the initial index level on each of their annual observation dates including the sixth anniversary.
This brought the total number of FTSE only, capital at risk autocalls to mature without gains in the UK retail space to ten – out of over 1,750 maturities, over two decades. The previous eight commenced just prior to the 2008 financial crisis. For those eight, if their maximum term had been seven years, only one would have failed to produce a gain. Whilst it will be another year before we will know whether this would be the case for the latest two, we certainly know an extra year or two would have been welcome.
The next pair of plans with final observations approaching require the FTSE 100 to be at or above 7,433 and 7,416 on 10th and 13th November respectively. With the FTSE hovering around these levels it’s possible that these plans could still mature positively, provide investors with 6 years’ worth of snowballing coupons – or conversely, just miss out and return original capital only. We remain hopeful that the market can see these through.
The last two plans of the year heading for their final destination are demanding something more of the UK blue chip index; levels of 7,623 and 7,688 on December 28th and 29th will be required for positive outcomes. With a Santa rally this may well be achieved but without such, investors will be facing a return of capital only.
The chart below plots the maturity trigger levels for the four autocalls facing their final maturity this year, together with the two that already reached their end date in November resulting in no gain, and the FTSE 100 index over their duration. As can be seen, over the six-year period the index often came close to the annual maturity triggers points but not close enough.
To us, this accentuates the benefit of extended maximum terms for 7 years or more for autocalls allowing for more opportunities to kick out with a positive result.
We remain hopeful that the market will rally to trigger positive maturities for the remaining four plans but either way, 2023 has now witnessed the first capital at risk FTSE autocalls to not mature positively since 2013.
Structured investments put capital at risk.
Past performance is not indicative of future results.
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