Five Year Performance Review 2023

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Reverse Convertible Note/ Fixed Income plans are specific type of structured investment that generate unconditional income over a fixed term. Capital is still placed at risk, albeit with a degree of downside protection through the incorporation of a capital protection barrier. To compensate for the risk of loss, fixed income plans pay interest that is greater than conventional debt from the same issuer, maturity and seniority – potentially making them attractive for income seeking investors. The main risks stemming from Fixed Income Plans are first of all counterparty risk, in the event that the issuer becomes insolvent or defaults, a catastrophic loss could result. Then there is market risk, observed at the end of the term when falls in the underlying over the term could lead to losses in the event the market drops below the protection level. Twenty pure fixed income plans were issued in 2022 (by strike date), paying either monthly, quarterly or annual income over terms ranging 2-6 years, with the majority utilising 5 year terms. The Bank of England Base Rate commenced 2022 at 0.25% and consistently rose to 3.5% in December 2022, whilst at the time of writing we are at 4.25% and unsure of how much further we have to go. The chart opposite shows the improvement in annual income terms seen as the Base Rate rose throughout the year. This may well be a continued theme for 2023, if a sustained base rate persists with no rate cuts in sight, fixed income structured plans could become an important component of portfolios. Reverse Convertibles 2022 – Capital at Risk Fixed Income plans

Capital at Risk Fixed Income Plan Annual Return vs UK Base Rate

10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%

4%

9%

3%

2%

5%

Bank Rate

1%

0%

Plan Referenced Annual Return

01/01/2022

02/01/2022

03/01/2022

04/01/2022

05/01/2022

06/01/2022

07/01/2022

08/01/2022

09/01/2022

10/01/2022

12/01/2022

01/01/2023

BoE Base Rate

Capital at Risk Fixed Income Annual Return

Deposit Plan Annual Return

We can see that capital at risk fixed income terms have clearly improved over the last year, with one stock linked plan paying just shy of 9% per year in exchange for increased risk of capital loss at the end of term. Given the magnitude and speed of rate hikes, deposit-based plans towards the latter end of the year emerged in competition with the capital at risk fixed income plans. Whilst the vast majority of deposit-based plans issued are autocall products, two fixed income deposit plans were released in November, one paying 5.5% per year! One important factor to note is the rise in deposit-based plans, the effect of rising interest rates has had a clear impact on annual returns offered by structured deposits. Given the significantly lower level of risk than a capital at risk plan, thanks

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