Five Year Performance Review 2023

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Welcome to our 2023 review, which provides a thorough overview of the retail structured products sector covering the maturities that occurred in 2022 and the preceding four years. We are happy to reflect on yet another positive year for the retail sector, with the overwhelming majority of investors with maturing structures being rewarded; over 98% of plans maturing in 2022 did so achieving a positive outcome for investors. Experienced advisers will know that attempting to time the market or predict the extent of short-term direction is a futile exercise. Understanding that the majority of market movements are just noise, we believe that the cap in returns on most structured products are more than an acceptable level for most and since the terms are defined at the outset, they are highly unlikely to disappoint. The reward for time in the market outweighs the headaches of attempting to time the market, especially if you get it wrong. Having weathered the impact of the pandemic collapse and the socioeconomic impacts that followed, equity markets put in a strong shift in 2021, returning to pre-pandemic highs. Many expected 2022 to be somewhat calmer, what we actually witnessed was an onslaught of volatility. Over the course of 2022 the FTSE 100 only fell 0.71% with an average closing level of 7,357, however this does not paint a proper picture of the true instability faced. Following the Russian invasion of Ukraine, the FTSE 100 tumbled below the 7,000 mark, yet a month later it was just shy of 7,700. This yo-yo movement endured throughout 2022, causing headaches for investors searching for some sort of direction. The dominant shape of retail structured products in the UK market are FTSE 100 linked autocall / kick-out contracts. Typically, these are designed to mature on the first relevant anniversary that the FTSE 100 Index is above a specified reference level – generally the level recorded at outset or an annual reducing percentage of it.

The chart below shows the FTSE 100 over the period 2018 to 2022, the distribution of FTSE 100 Index linked capital-at-risk autocall maturities and corresponding annualised gains. The average annualised return of these being 7.06% over an average term of just over two and a half years. Despite the significant volatility over the years, it was not extreme enough to lead to any prolonged gap in maturities, other than during the pandemic, when any resulting missed maturities were simply deferred to a subsequent year with a higher potential gain.

FTSE 100 linked Capital at Risk Autocall Maturities 2018-2022

8,000 7,750 7,500 7,250 7,000 6,750 6,500 6,250 6,000 5,750 5,500 5,250 5,000 4,750

16%

14.5%

14%

12%

10%

8%

6%

FTSE 100

4.76%

4%

FTSE 100 2020

2018 2021

2019 2022

Average Annualised Return (%)

2%

0%

01/01/2018

01/01/2019

01/01/2020

01/01/2021

01/01/2022

01/01/2023

3

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