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All But One Of The Structured Products Maturing In The First Quarter of 2015 Return a Gain

By Ian Lowes, founder of provides advisers and other users with the opportunity to research and compare the structured products ordinarily available through IFAs. With a database of products launched since 2000, the firm has collated the performance data for all plans distributed by IFAs that matured in the first quarter of 2015. While past performance is not a guide to the future we hope that the information will improve investors’ and advisers’ ability to analyse structured products and make informed investment decisions. We believe that the research is evidence that the products do exactly as they say on the tin and are worthy of a place in investors’ diversified portfolios.

All of the 117 products distributed through the Independent Financial Adviser space that matured in the first quarter of the year made a gain, bar one which returned the original capital.

The average annualised gain of products maturing in the first three months of the year was 7.14% over an average term of nearly four years. The first quartile of products made an average annualised gain of 10.51%, while the bottom quartile made an equivalent of 4.68%. The average total gain of all products was 31.19%.

The best performing maturity in the quarter was the Morgan Stanley FTSE Kick Out Growth Plan 15, which matured on its third anniversary, returning a 60% gain because the FTSE had risen 10%. Investors would only have lost money if Morgan Stanley had gone bust or the FTSE didn’t rise by 10% and at the end of six years was below 2945 points.

The only investment that didn’t return a gain was a Barclays product linked to iShares MSCI Emerging Markets Index Fund, which fell by 1.78% over the five-year term, and so the plan, being Capital ‘Protected’, returned the original capital without a loss.

Deposit based products made an average annualised gain of 5.49% over an average term of 4.47 years, while Capital ‘Protected’ products made the equivalent figure of 5.82% per annum over 5.23 years. Capital at Risk products made an average annualised return of 8.37% over an average term of 3.42 years.

The FTSE 100 was by far the most common underlying measurement used, accounting for 88% of the maturing products, with a healthy average annualised return of 6.88% over an average term of 4.14 years. This figure includes the returns generated by all product types and so will naturally be pulled down by Capital ‘Protected’ products and Deposit Based products that provide capital protection as a trade-off for a less attractive reward profile than Capital at Risk products.

The 53 Capital at Risk products linked solely to the FTSE 100 made an average annualised gain of 8.01% over an average term of 3.65 years. This was greater than that of the Capital ‘Protected’ products generating average annualised returns of 6.15% over an average term of 5.19 years and Deposit Based products made 5.49% per annum over 4.47 years.

Even the bottom quartile of the FTSE 100 linked Capital at Risk products produced annualised gains of 5.98%, while the top quartile made 10.89%. This result is impressive given the market protection built into the products and shows the range of risk profiles within the Capital at Risk products themselves.

The non-FTSE 100 linked products represented a wide range of payoff profiles and underlying measurements. The average annualised return of the 14 products was 9.04% over an average term of 2.86 years. The first quartile of the products made an average annualised return of 12.01%, while the bottom quartile made 4.97%.

There has been some negative headlines recently around investors overestimating the returns of structured products. Whilst we can’t speak for the high street distributed products (other than to say that we have frequently identified them as poor value), the IFA sector has done little but impress as of late.

The latest maturity figures show the positive results generated by a range of structured product types with different risk profiles and underlying measurements. When chosen selectively in the context of an investor’s attitude to risk, structured products represent a valuable diversifier to portfolios with their in-built market protection and defined outcomes.

Past performance is not a definitive guide to the future, but we were banging the drum for these investments long before they began, as even without the benefit of hindsight, we couldn’t understand why any good investment adviser would dismiss the sector out of hand.

Since then, the Regulator has at least confirmed that anyone who considers themselves an IFA can no longer dismiss the sector. Those IFAs that have been carefully selecting sensible structures have been delivering attractive returns that will be exactly in line with the clients expectations given the market conditions.