Lowes Magazine 117

INVESTING Annual Structured Products Performance Review

Structured products Q4 maturity table THE EFFECT OF THE PROLONGED CORONAVIRUS crisis on the markets in the last quarter of 2020 served to emphasise the benefits of structured products. As far as Lowes ‘Preferred’ plans were concerned, our clients held ten structured investments and one structured deposit that reached maturity in the quarter. The deposit and two of the investments returned original capital only because the underlying to which returns were linked was down over the term (but above relevant protection barriers). The remaining plans matured positively, in some cases, very impressively – e.g. a 66% gain despite the FTSE being almost 10% lower. All the autocall or kick-out contracts that had the potential to mature early during the quarter saw their maturity deferred until next, or subsequent years. This snowballs the potential gains, meaning the opportunity to outperform the markets improves with each year that passes.

THIS SPOTLIGHT WE TALK TO TWO LOWES CONSULTANTS, Michael Stowe and Chris Large, about their experience of providing advice during the Coronavirus pandemic. Spotlight on the Lowes team

Michael Stowe had hardly begun to see clients as a Lowes Consultant before lockdown occurred. “It was very frustrating,” he says. “I have clients in various parts of the UK, from Scotland down to Kent and across to Cheltenham, and I was in the process of going out to meet many of them, some for the first time, when everything came to a halt.” It meant adjusting the way he worked and moving to new ways of communicating with clients, primarily by telephone and video calls via the Zoom software.

Maturities 2020: Average performance of market vs Lowes ‘Preferred’ Plans

AS A RECOGNISED AUTHORITY, EVERY YEAR LOWES analyses and publishes a Performance Review of the structured products which matured in the past calendar year. In the Review, we analyse the maturities of all structured products available to retail investors through Independent Financial Advisers, highlighting those plans which have been ‘Preferred’ by Lowes. This enables an overview of the market as well as our own performance in the selection of products we believed would do best for our clients. The data shows that 2020 has been another successful year for retail structured products, despite the market turmoil caused by the colossal impact of the Coronavirus pandemic, which saw the FTSE 100 Index suffer its worst week and largest daily fall since the ‘Black Monday’ crash in 1987. This continues the exceptional performance of structured products over the 10 years to the end of 2019, which we reported in our Review of the Decade: 2010-2019. We are delighted to report also, that the Lowes selection process for ‘Preferred’ plans has yet again paid dividends. In 2020, the Lowes ‘Preferred’ maturities (55 out of 235) outperformed the averages of their respective sub-sector in most instances, returning an inflation beating average annualised return of 4.44%, across an average 5.3 years. The table shows the annualised performance of the market and Lowes ‘Preferred’ Plans. The average returns of the top quartile of those ‘Preferred’ plans was 9.57% and whist the bottom quartile return was nil, this is reflective of these maturities returning capital in full, despite the market falling over their respective investment terms. In other words, they have done their job in exceptional market circumstances of protecting capital. Amongst structured products in general, there were casualties of the stockmarket fall – 16 of the 235 products that matured in 2020 suffered a capital loss at maturity (none were Lowes ‘Preferred’ plans.) In the main these were riskier share- or commodity-linked products and many of these were destined to mature at a loss even without the pandemic. What should be noted, is that those 16 are the highest number of loss-making products since 2013. Also noteworthy is that, despite the fall in the index earlier in 2020, no FTSE 100-linked plans have matured at a loss since 2012. To provide further protection against exceptional market events such as we have experienced in the past year, Lowes helped develop the 10:10 Plans which first launched in 2015. These extended the typical, maximum term of an autocall product from five/six years to 10 years, thereby increasing the opportunity for the product to weather a significant market event and deliver a positive outcome for investors. As these autocalls roll over the potential gains from year to year, when markets fully recover and the products now in the market mature, we could see them at the top of several investment performance tables. You can obtain a copy of the Review of the Decade: 2010-2019 from our website, at: Lowes.co.uk/SPDecade and of this year’s Performance Review at: www.lowes.co.uk/SPReview2021

Structured Products Maturities 2020 Number of Product Maturities Number of Products Generating Positive Returns Number of Products that Returned Capital Only Number of Products that Lost Capital Average duration / term (years)

Lowes ‘Preferred’ Plans

All Products

235

55

“It was important to us at Lowes that we kept everyone as informed and in touch with us as possible. We gradually rolled out Zoom for the first time meetings and reviews, and we were really pleased how clients responded to it. It wasn’t a case of only younger clients being familiar with the technology; clients of all ages took to it really quickly. It’s been an invaluable tool to keep in touch with people.” Lowes put together a tech team to assist any clients who needed help in setting up the technology. “Clients appreciated we were doing our best for them in a difficult situation and many of them have said how much they like having face-to-face meetings virtually. It also meant if a client needed to talk about their situation we could have a quick chat via Zoom. I’ve said to clients that if they have a question they shouldn’t wait for the review meeting, they should get in touch and we can have a virtual meeting. “It’s also meant I’ve been able to give clients more time, especially for any clients who were on their own during lockdown and wanted to talk. Michael believes video calls will be useful when we do get back to ‘normal’. “I’ll use it to speak with clients who I may not be able to see when I’m in their area because they are on holiday, for example; we can catch up virtually. “I think the technology has added value to what we can offer clients now.”

163

38

56

17

16

0

4.78

5.27

Average Annualised Returns

All Capital-at-Risk Products

4.22%

5.35%

Client held ‘Preferred’ plans that matured in Q4 of 2020

9.22%

Upper Quartile

10.49%

Maturity date

Plan Gain

-4.10%

Lower Quartile

0.00%

Provider

Underlying Underlying change

1.53% All Deposit Products

1.79%

Investec

14/10/20 Euro Stoxx 50 5.90% 87%

3.98%

Upper Quartile

4.34%

Investec

14/10/20 FTSE 100

-5.49% 66%

0.00%

Lower Quartile

0.00%

Investec -6.45% 0%* Societe Generale 02/11/20 FTSE 100 -13.62% 0% Morgan Stanley 20/10/20 FTSE 100 -6.03% 14.12% Investec 24/11/20 Euro Stoxx 50 1.73% 72% Investec 24/11/20 Euro Stoxx 50 1.73% 95% Investec 24/11/20 FTSE 100 -9.73% 50% Investec 24/11/20 FTSE 100 -9.73% 66% Societe Generale 14/12/20 FTSE 100 3.67% 36.70% Mariana Capital 21/12/20 3 FTSE 100 Shares** -43.31% 0% 14/10/20 FTSE 100

Consultant Chris Large , who covers the South and South East beneath Birmingham, says his clients are largely retired and elderly and, in his experience, less familiar with using technology, with many preferring to have meetings via the telephone. “While still efficient and we try to keep the human touch in the meetings, you do lose a little of that when things are done over the phone rather than in a face-to-face meeting,” he says. When the initial lockdown was imposed and stockmarkets

3.52%

All Products

4.44%

8.59%

Upper Quartile

9.57%

-3.09%

Lower Quartile

0.00%

Lowes Competition 2021 WITH THE CONTINUING IMPACT OF THE Coronavirus pandemic and Brexit on the UK’s GDP and the stock markets, for the Lowes competition this year it seems pertinent to stay close to home and to focus on an index with which all our clients will be familiar. What we are asking you to do is

fell, Chris says he spent a lot of time contacting clients to reschedule meetings and where necessary, reassure them. “Over the years we have done a pretty good job of educating clients not to sell when the markets fall, because then they crystallise their losses rather than letting markets bounce back up over time and restore their wealth. But this was an unprecedented situation so you can understand people’s fears.” In July, when the lockdown was lifted, Chris went out to see as many clients as he could. “We contacted people in advance to say how the meeting would proceed in terms of distancing, face masks, hand sanitisation, and so on, and we managed to see quite a few people before the second lockdown was imposed.” During the pandemic, Chris says he has welcomed some new clients, “without even meeting them – a strong recommendation helps”. But he has also been made aware of a rise in fraudulent activity, with criminals taking advantage of people’s increased online activity to try to scam them, and he warns clients to be vigilant, especially when transferring money. When the pandemic is over he believes people will get used to different ways of working, such as using video calls. “The important thing is we will go the route the client wants and feels comfortable with, whether by phone, video, or face-to- face. That’s what personal service is all about.”

*Structured deposit **Worst performing share = Vodafone

2020 6,460.52

predict, to 2 decimal places, the value of the FTSE 100 at close of the last trading day of 2021 – 30 December. The prize for the person who is closest to the correct figure, is £250 of Marks and Spencer vouchers. To help you with your answer, here are the numbers for the last trading days of the year over the past 5 years.

2 1 5 3 6 9 8 7 4 6 8 9 4 7 2 5 3 1 7 4 3 1 5 8 9 2 6 4 9 1 5 2 3 6 8 7 8 5 6 9 1 7 3 4 2 3 7 2 8 4 6 1 5 9 9 3 7 2 8 1 4 6 5 1 2 4 6 3 5 7 9 8 5 6 8 7 9 4 2 1 3 Grid n°736872102 hard

2019 7,542.44

Sudoku solution We hope you enjoyed the Sudoku puzzle we published on page 3 of this issue of the Lowes magazine. Here is the solution to the grid.

2018 6,728.13

2017 7,687.77

2016 7,142.83

Source: FE Analytics

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