Lowes Annual Performance Review 2024

20 years since first FTSE only autocall

returns with the comfort of inbuilt protection, shielding from multiyear drawdowns that had been experienced in the recent history. The following five years saw an explosion in autocall issuance around the world but in the UK retail space, just over 50 were brought to market, representing 7.6% of total issuance. The FTSE 100 was always the favoured underlying, accounting for over two thirds of the issued autocalls, with the majority of the rest utilising the FTSE together with another index. The chart below shows the evolution of autocalls over the past two decades becoming the structure of choice, replacing the previously dominant growth products. Since 2013 autocalls have consistently represented more than 60% of total issuance each year.

The sector saw a considerable milestone in 2023 with the twentieth anniversary of the issuance of the first autocall. Premier Asset Management’s FTSE 100 Growth Plan struck in July 2003, the plan offered a simple return of 8% for each year held, with the possibility for a triggered early maturity on the first anniversary the FTSE 100 was at or above its strike level. If the index was down and the plan was still live by its sixth and final anniversary, the investment would track the fall in the FTSE, but only if it had fallen by more than half during the term. Autocalls were a very welcome innovation to the structured product sector following the uncertain times the FTSE 100 faced following the dot-com bubble collapse in the early 2000’s. Investors were presented an opportunity to achieve equity-like

Evolution of autocalls since 2003

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Loss makers – first since 2021

a very poor outcome with the investment suffering the impact of the substantial decline in the price of the worst performing of the three shares utilised; Vodafone. Not only was the share price below the relevant maturity trigger level on every occasion, it was also significantly below the 50% capital protection barrier at maturity. Whether the situation is partly blamed on one or more of a myriad of possible justifications, be it stagnating revenue and profits, Brexit, Covid-19, war in Europe, or something else altogether, the fact is that Vodafone shares fell to a 27 year low during the term of these autocalls. The results highlight that share linked plans are typically high risk and as such, often represent the best and the worst of all structured product maturities.

June, July and September 2023 saw the first UK retail autocall products to mature with a loss in more than two years. In the preceding four years only 11 autocalls matured with a loss out of over 1000 maturities in total. The 11 loss making plans had baskets of shares as their underlying measure, as indeed did 2023’s loss-makers. The five negative performers in 2023 often returned around 32% of investors’ original capital. On the other side of the league table some of the highest returning autocalls are also share linked, demonstrating both sides of the risk reward coin. The potential reward for a successful maturity of these high risk, more speculative investments were double digit returns, for each year held. As it was, the acceptance of the risk on this occasion transpired in

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The first autocall utilised BNP Paribas as the counterparty who remain an active participant in the sector today, alongside eight other Globally Systemically Important Banks. Whilst the risk of default may be very low, it is still a risk that needs to be acknowledged. With nine sector participants, significant counterparty diversification to mitigate default risk is possible and good practice.

Across all shapes of capital at risk autocalls the FTSE 100 has been the preferred underlying. To date over 1800 FTSE linked autocalls have matured with over 99% doing so positively, with average annualised returns of 7.64% over an average term of 2.2 years.

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