Investment Type
Investments are categorised as follows:
- Growth - those investments designed to potentially provide growth
- Income - those investments designed to potentially provide income
- Growth & Income – those investments designed to potentially provide a combination of both growth and income
- Auto-Call / Kick-Out – those investments which have the potential to mature on pre-determined anniversary dates
- Growth with Auto-call – Growth investments which also have the potential to mature on a pre-determined anniversary date.
Product Type
Products are categorised as follows:
- Capital at Risk: Those products that are designed to put some or all of the investor’s capital at risk if the underlying index falls below a certain level
- Capital 'Protected': Those products that are designed to ensure that an investor will only lose capital in the case of counterparty default
- Deposit Based: A fixed term deposit account in which some or all of the investor’s capital may be covered by the FSCS.
Index Link
The underlying measurement to which returns are linked.
Term
The investment term stated in the product literature. There may however be some additional weeks between the date on which the offer ends and the start date and also between the final investment date and the maturity proceeds distribution date.
Counterparty
When investing in a plan of this type, the capital will, in effect, be loaned to a financial institution known as the 'counterparty'. The return of capital will be dependant upon the continued solvency of the counterparty throughout the term of the investment, therefore the capital will be at risk from the date of investment. Before proceeding, investors must be aware that should the plan's underlying counterparty file for bankruptcy during the term of the plan, or be unable to repay its liabilities, some or all of the capital invested may be lost. As with all investments, it is imperative that those who wish to invest in a plan of this type read the plan brochure and terms and conditions thoroughly and understand the risks involved before proceeding.
Deposit Taker
When investing in a structured deposit, the capital will be placed in a fixed term deposit account held with a financial institution known as the 'deposit taker'. The return of capital will therefore be dependant upon the continued solvency of the deposit taker throughout the term of the investment. Before proceeding, investors must be aware that should the deposit taker file for bankruptcy during the term of the plan, or be unable to repay its liabilities, some or all of the capital invested may be lost. Investors may, however, be eligible for cover provided by the Financial Services Compensation Scheme (FSCS) up to a certain amount of their investment. The availability of such compensation is defined under the terms of the FSCS, and certain investment limits will apply. As with all investments, it is imperative that investors read the plan brochure and terms and conditions thoroughly and understand the risks involved before proceeding.
Collateralised
If the issuing institution becomes insolvent, the collateral will be called upon. This could result in an enforced early maturity which could result in a return of less than the original investment but a catastrophic loss is unlikely to occur unless the institution issuing the collateral fails.
S&P Rating
The financial strength of the Counterparty, as rated by Standard & Poor's, a leading Credit Rating Agency for financial institutions worldwide. Standard & Poor's provides both short-term and long-term credit ratings, rating institutions on a sliding scale from 'AAA' to 'D', where 'AAA' denotes the highest level of financial strength and 'D' the lowest. Intermediate ratings are also offered at each level within the major categories between AA and CCC, sometimes with the inclusion of a '+' representing the higher end of the category, or '-' representing the lower end of the category.
AAA - The highest rating assigned by Standard & Poor's. The capacity of the financial institution to meet its financial commitments is considered to be "extremely strong" (the world's major companies and governments);
AA - The capacity of the financial institution to meet its financial commitments is considered to be "very strong";
A - The financial institution is more susceptible to the adverse effects of circumstantial and economic changes than those financial institutions appearing in higher-rated categories. However, the financial institution's capacity to meet its financial commitments is still considered to be "strong";
BBB - Adverse economic conditions or changing circumstances are more likely to lead to the financial institution having a weakened capacity to meet its financial commitments. However, the capacity to meet financial commitments is still considered to be "stable".
Fitch Rating
The financial strength of the Counterparty, as rated by Fitch Ratings, the smallest of the three major Credit Rating Agencies (Standard & Poor's and Moody's the other two). Fitch Ratings provides both short-term and long-term credit ratings; rating institutions on a sliding scale from 'AAA' to 'D', where 'AAA' denotes the highest level of financial strength and 'D' the lowest. Intermediate ratings are also offered at each level within the major categories between 'AA' and 'CCC', sometimes with the inclusion of a '+' representing the higher end of the category, or '-' representing the lower end of the category. Fitch Ratings's generic long-term credit ratings are explained below.
AAA - Highest credit quality. Such ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly likely to be adversely affected by foreseeable events.
AA - Very high credit quality. Such ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
A - High credit quality. Such ratings denote expectations of low default risk. The capacity for payments of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
BBB - Good credit quality. Such ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.
Moody's Rating
The financial strength of the Counterparty, as rated by Moody's Investors Service, a leading global credit rating, and research and risk analysis firm. Moody's publishes both short-term and long-term credit ratings, rating institutions on a sliding scale from 'Aaa' to 'Caa', where 'Aaa' denotes the highest level of financial strength and 'Caa' the lowest. Moody's includes numerical modifiers '1', '2' and '3' to each generic rating classification from 'Aa' and 'Caa'. The modifier '1' indicates that the obligation ranks in the higher end of its generic rating category; the modifier '2' indicates a mid-range ranking; and the modifier '3' indicates a ranking in the lower end of that generic rating category. Moody’s generic long-term credit ratings are explained below.
Aaa - The highest rating assigned by Moody's. The financial institutions' obligations are judged to be of the highest quality, with minimal credit risk.
Aa - The financial institutions' obligations are judged to be of high quality and are subject to very low credit risk.
A - – The financial institutions' obligations are considered upper-medium grade and are subject to low credit risk.
Baa - The financial institutions' obligations are subject to moderate credit risk, considered medium-grade and as such may possess certain speculative characteristics.
Tax Treatment if held outside Tax Shelter
The tax treatment of any income or growth arising from the investment if held directly, i.e. outside of a tax shelter such as an ISA as outlined in the product literature.
Minimum Contributions
Availability
The methods available by which investors may invest in the plan.
Investments held within ISAs (Individual Savings Account) are sheltered from Income Tax and Capital Gains Tax. ISAs are available in two forms: Cash ISAs and Equity (Stocks & Shares) ISAs, which are described below.
Cash ISA
In any tax year, subject to eligibility, an individual (over the age of 16 years) can invest up to £5,100 in a Cash ISA. Cash ISAs do not expose the capital to risk other than in exceptional circumstances.
Equity (Stocks & Shares) ISA
In any tax year, subject to eligibility, an individual can invest up to £10,200 in an Equity (Stocks & Shares) ISA, less any money invested in a Cash ISA in the same tax year. Cash can also be held pending future investment in an Equity ISA. Interest on cash held in the Equity (Stocks & Shares) component will be subject to a flat 20% tax charge.
Click here for more on ISAs
Direct refers to holding the investment outside of a tax-sheltered wrapper such as an ISA or SIPP. Thus, any returns generated by direct investments will be subject to tax as detailed in the plan’s individual terms and conditions.
Such investments can accept the transfer in of existing Cash ISAs from a different provider whilst retaining the tax sheltered status on those funds and without affecting current year ISA subscription allowance. Exit charges may apply from the existing provider.
Such investments can accept the transfer of existing Cash ISAs or Equity ISAs from a different provider whilst retaining the tax sheltered status on those funds and without affecting current year ISA subscription allowance. Exit charges may apply from the existing provider. It should be noted that a Cash ISA transferred to an Equity ISA can not subsequently be transferred back into a Cash ISA.
Such investments can, be held in a Self Invested Personal Pension (SIPP) subject to the rules of the pension provider / individual scheme.
Capital at Risk Barrier Observation
There are nine types of protection commonly used in retail structured products.
- Not Applicable: Capital 'Protected' at Maturity
- End of Term Only: Capital at risk if reference asset (e.g. Index) is below barrier at the final index level only
- Full Term daily close: Capital at risk if reference asset (e.g. Index) closes below barrier on any day during the term
- Full term intra-day: Capital at risk if reference asset (e.g. Index) falls below barrier at any point during the term
- Part Term daily close: Capital at risk if reference asset (e.g. Index) closes below barrier during a defined period during the term
- Part Term intra-day: Capital at risk if reference asset (e.g. Index) falls below barrier at any point during a defined period during the term
- Combination (see description): A combination, or variation of any the above
- No Barrier Protection: Capital at risk
- No Barrier Protection, Reduced Downside: Capital at risk, but reduced by less than 1% for every 1% fall in the reference asset (e.g. Index) below the Starting Index Level
Opinion
This is the subjective opinion or observations by StructuredProductReview.com and should not be construed as advice or a recommendation to invest. Products shown as 'Preferred' are those that, following our research and cross-referencing against other plans available at the date of review, we would usually expect to utilise in the course of our day-to-day role of advising our clients for use within a diversified portfolio. This is not to say that plans not marked as 'Preferred' would be unsuitable or inappropriate for other investors and could produce better returns.
Preferred
Products shown as 'Preferred' are those plans that, following our research and cross-referencing against other plans available at the date of review, we would usually expect to utilise in the course of our day-to-day role of advising our clients for use within a diversified portfolio. However, plans not marked as 'Preferred' may well be more appropriate or suitable for you. It must be appreciated that it is very possible that none of the investments featured on this site are suitable for you and so the 'Preferred' status or lack of it should not be construed as advice or a recommendation to invest.
Counterparty Solvency
In addition to investment risk, the return of capital will be dependant upon the continued solvency of the underlying counterparty or deposit taker throughout the term of the investment. Before proceeding, investors must be aware that should the plan’s underlying counterparty or deposit taker file for bankruptcy during the term of the plan, or be unable to repay its liabilities, some or all of the capital invested may be lost. As with all investments, it is imperative that investors read the plan brochure and terms and conditions thoroughly and understand the risks involved, before proceeding.
Credit Default Swap
A credit default swap (CDS) is a contract between two parties where the buyer is either protecting against a credit event or speculating on the creditworthiness of a particular institution. The buyer of the protection pays a premium to the protector who, in turn, agrees to make good the loss in, for example, the event that the reference institution is declared bankrupt. The CDS rate is the premium payable over the risk free interest rate for the protection.
The CDS rate may therefore serve as a further tool to indicate a counterparty’s strength as the higher the rate, the greater the indicative potential for default as viewed by the market at that time.
That said, it should be appreciated that the CDS rate is a snap-shot which can vary daily and whilst it may give an early warning of potential problems with an institution there are definite limitations. To illustrate this, at the time Lehman Brothers filed for bankruptcy their CDS was in the six to seven hundred range. During the financial crisis, Citi reached roughly the same level as Lehman’s, Morgan Stanley’s CDS rate was almost double that and the rate for AIG at one point exceeded 3700, yet these three institutions are still trading today.
The CDS may therefore give an indication of the market’s view of the strength of a counterparty but should not be relied upon in isolation.
CDS data on StructuredProductReview.com is provided courtesy of Jubilee Financial Products and for each plan is the indicative rate as at the time of launch.
The Average CDS Rate shown on StructuredProductReview.com is an indicative average of the following counterparties: .
NOTE: The coloured bar is for indicative purposes only and the colour relative to the CDS rate should not be relied upon.
Multiple Counterparties
Due to the fact that this plan has more than one counterparty or is collateralised with assets provided by more than one institution, we have shown the highest and lowest credit ratings of the counterparties/collateral providers. The highest rating is shown at the top of the rating bar and the lowest along the bottom.
Overview
The overview is a simple summary of the plan and does not normally include details of risk to capital. Please ensure you read the full description and product literature to satisfy yourself as to the full terms and risks of any investment.
Non / Tax-free
The Non (or tax-free) score is the score relevant for the UK non-tax payers or those investing tax-free such as through an ISA or using their CGT allowance.
Basic
The basic score is the score relevant for UK basic rate tax payers. The tax rate applicable for the product wrapper is taken into account.
Higher
The higher score is the score relevant for UK higher rate tax payers. The tax rate applicable for the product wrapper is taken into account.
Riskmap
The riskmap is a measure between 1 and 5 which reflects the risk associated with the product. The higher the riskmap the higher the risk of the product. Five tests of probabilities of different levels of principal loss and the overall product volatility are considered. This measure using FVCs own methodology it believes captures the true risk level of structured products given their non-linear payoff and the concern that many investors have for different levels of principal loss.
Value Rating
The value rating reflects our estimate of the total costs taken out of the product from direct fees and profit margin on the underlying derivative. Calculations are done with FVCs own models and market data and the issuer or other market participants may obtain different results. The estimated total cost are converted into a rating between 0 and 10. This conversion is dependent on the maturity of the product.
Simplicity Rating
The simplicity rating is a rating between 0 and 10 which reflects in FVCs opinnion the complexity of the product. The simpler the structure the higher the rating.
Return Rating
The return rating is a rating between 0 and 10 which reflects in FVCs opinion the risk adjusted return under reasonable and consistent forward looking assumptions for underlying asset evolution and therefore product return.
Probability Table
Probability table expressed in simple annualized buckets.
Annualized Volatility (Product)
Equivalent annualized volatility for the product using simulated returns.
Product Sharpe Ratio
Annualized sharpe ratio for the product using
Market Sharpe Ratio
Assumed annualized sharpe ratio for the underlying using simulated returns.
Equivalent Initial Portfolio
The (unique) portfolio weighting which at the start of the investment term has the same sensitivity to the underlying and interest rates and so can be thought of as the equivalent static portfolio.
Underlying
Percentage component in the underlying (derived from the delta calculation).
Bond
Percentage component in a hypothetical par bond of the same maturity as the product (derived form the rho calculation).
Cash
Percentage component in a cash investment (to bring total portfolio to 100%)
Upside and downside measures
FVCs own measures to further analyse product behaviour.
Upside measure
Expected upside return over principal amount expressed on a per annum basis.
Downside measure
Expected downside loss below principal amount expressed on a per annum basis.
Upside measure beyond risk-free
Expected upside return over principal amount plus interest at the risk-free rate expressed on a per annum basis.
Downside measure beyond risk-free
Expected downside loss below principal amount plus interest at the risk-free rate expressed on a per annum basis.
Initial Sensitivities
The initial sensitivities shown reflect the likely change in product secondary market value for (reasonable sized) changes in the underlying asset(s) value(s), parallel changes in the level of interest rates and changes in the volatility(ies) of the underlying asset(s).
Delta
Sensitivity of product value to changes in the price of the underlying asset(s). Normally in the range 0% to 100%.
Rho
Sensitivity of product value to changes in interest rate for 10bps parallel rate increase.
Vega
Sensitivity of product value to changes in volatility levels for 10 bps parallel volatility increase.