Lowes Magazine Issue 118

INVESTING

Preferred Plan maturities THE FIRST QUARTER OF 2021 WAS YET another period that showcased the value of Lowes’ structured product selection. Can you help us spread the word? More people should know about structured products and the value they can bring to a portfolio. We feel that portfolios with structured products are more satisfying to hold and afford greater peace of mind, helping investors to focus on defined outcomes and ignore daily noise. Please share a copy of this magazine with a friend or neighbour, or refer them to Lowes.co.uk, or your usual Consultant and help them discover more about the value of Lowes and structured products. The table below shows the performance of the Lowes ‘Preferred’ structured products most commonly held by our clients, which matured in the first quarter of 2021. Beyond the Morgan Stanley deposit, which achieved its maximum potential of 30% interest because the FTSE 100 was higher over the six years, and the Hilbert, high risk share linked plan which only ran for six months, the others achieved annualised returns of between 5.7% and 8.1% over terms of 2, 3 and 4 years, despite the pandemic-induced market fall. The three Investec maturities were issues 1, 7 and 8 of the Investec/Lowes 8:8 Plan

MANAGING DIRECTOR IAN LOWES AND Compliance Director Barry Strathearn recently completed a Masters degree in Financial Planning and Business Management, putting them at an academic level above most in the profession. From its early days, Lowes has differentiated itself as an Independent Financial Adviser by the high level of importance placed on gaining qualifications and for many years not only has Lowes had some of the most qualified individuals in the profession but the firm was one of the first in the country to achieve Chartered status, which recognises the level of qualifications held within the firm. Managing Director Ian Lowes and Compliance Team spotlight

A Structured Product Milestone

Director Barry Strathearn have both held the highest of industry accolades, Fellow of the Personal Finance Society, for a number of years. So, in 2020 they decided to undertake a further formal qualification, namely a Masters degree (MSc) in Financial Planning and Business Management. In part this was a friendly rivalry between the two but primarily they undertook the additional qualification to ensure that as directors they were leading by example. It was Barry who first suggested the Masters degree as an option. “I’ve studied for a qualification pretty much every year over the past couple of decades and the Masters was a natural extension to the qualifications Ian and I held.” “I was reluctant at first,” Ian says, “because life is hectic enough running a financial planning business and it had been a while since I’d undertaken any formal education. However, Barry was persuasive.” Barry adds: “I pointed out that this would put Lowes directors amongst an elite number of people with the Masters qualification and also, that if I alone had the degree, then I would be the highest qualified director in the company.” The gauntlet had been laid down. They began the course in January 2020 and had made just two trips to University in Manchester before the pandemic took hold and the country went into lockdown. The university was forced to make substantial changes to its teaching structure as well as moving to a virtual environment for lectures. In addition, Ian and Barry were at the heart of moving the Lowes business from office based to operating remotely, with all the logistical, technological and personnel issues that raised. “There was a lot on our plates,” Ian says. Ian wrote his dissertation on structured products. “It is a subject I am passionate about, I know well and have written about extensively. I knew what I wanted to say in my dissertation, and one of the hardest parts was finding sources to support the facts, as I couldn’t reference my own articles.” Barry’s dissertation, ‘The culture of rewarding people in financial services’, covered the impact of coercion by the regulator on payment structures in the profession. They submitted their dissertations in December 2020. ““When we received our results, given everything that had been going on in the year, we were very pleased to be told we had been awarded Merits, the highest we expected in the circumstances,” Ian says. Asked how they feel about having achieved the Masters degree, both agree that “it was good to stretch ourselves both academically and on a practical level,” although the impact of the pandemic both on the course and running the business from home, “made it a harder journey than we both expected.” “Overall, it was a positive experience,” Ian adds, “and one which helps keep Lowes at the forefront of our profession.”

THE STRUCTURED PRODUCT MARKET HAS CONTINUED to evolve and develop over the years, with new and innovative structures for investors. The autocall is one such innovation. It first appeared in the market for advised investors in 2003, since then these products have grown in popularity to such an extent that they are now the most common vehicle in the structured product market. This is in part because the sector is well regulated, has become a lot less complex over the years, and many plans regularly outperform other investment products, while providing contingent capital protection against stock market falls. 2021 Milestone In February this year the market saw a milestone reached with the maturity of the 1,000th FTSE 100-linked capital-at-risk autocall in the UK retail structured product market. As a recognised expert in the structured product market it may come as no surprise that Lowes recommended the first autocall to many of our clients. We also have probably the most comprehensive set of data on product performance, and we have analysed all 1,000 autocall maturities from 2003 publishing the results in a review of the sector, which can be obtained from Lowes.co.uk/AutocallReview2021 . In terms of performance, the analysis shows that the mean annualised return was an inflation-busting 8.04% with the highest annualised gain at 16.2%. Only eight of the 1,000 maturities matured with no gain, returning capital only. There were none that matured at a loss*. This is an impressive performance by anyone’s standards, not least because the investments protect original capital at maturity from all but the most extreme circumstances and market conditions. We believe structured products per se and autocalls in particular, should be considered as part of any balanced portfolio. The most common maximum term for autocalls throughout most of the sector’s evolution was six years but in 2015, Lowes was instrumental in helping to change the market through the

8:8 Plan The first issue of the original Investec/Lowes 8:8 Plan matured on March 8, 2021, giving investors a gain of 22.5% plus the original capital - this despite the FTSE 100 being down almost 7% over three years. This plan was the 1,001st FTSE 100 linked, capital-at-risk autocall to mature. Investec are no longer issuing new products to the market so Lowes has instead worked with Mariana Capital to continue the 8:8 range, the first issue of which has proven very popular. The second of the Mariana 8:8 Plans should be launched by the time you receive this magazine – please visit Lowes. co.uk/8 or contact your Lowes Consultant to find out more. (*Four FTSE 100 linked autocalls issued in 2008 never reached maturity because they utilised Lehman Brothers as a counterparty and failed in October 2008 when the bank collapsed. These were exceptional circumstances and over time investors recovered between 79.53% and 97.48% of original capital, depending upon the product.) Some autocalls are riskier than others and Lowes analyses every product offered to the advised UK retail market, highlighting those we will recommend to clients as part of our ‘Preferred’ plans. Lowes has continued to shake up the market with the launch of the Lowes UK Defined Strategy Fund, an innovative fund of structured investment strategies. This provides an easy way to invest across multiple structured investment strategies, linked predominantly to the FTSE 100 Index, with no more than 10% credit exposure to any one bank. introduction of the 10:10 Plans, the first 10-year plans. Extending the maximum duration and increasing the number of callable maturity dates, has meant a greater potential for the investment to mature with a gain. It is perhaps no surprise that since then the sector has seen a general move to longer durations.

Maturity Date

Term (Years)

Underlying Change

Plan Gain

Provider

Underlying

Morgan Stanley

14/01/2021 FTSE 100 6 6.47% 30% 1

Meteor

10/03/2021 FTSE 100 4 -8.41% 25%

Focus 17/03/2021 FTSE 100 4 -8.92% 25% Augere 23/03/2021 FTSE 100 3 -3.22% 19.5% Walker Crips 23/03/2021 FTSE 100 3 -3.22% 19.8% Investec 08/03/2021 FTSE 100 3 -6.72% 22.5% Investec 28/01/2021 FTSE 100 2 -3.27% 16% Investec 11/03/2021 FTSE 100 2 -5.52% 17% Hilbert 18/03/2021 3 Shares 0.5 2.12% 2 8.5% 1 Deposit based 2 Worst performing share (Vodafone)

7 2 8 9 1 6 5 3 4 1 9 6 4 5 3 7 2 8 5 3 4 2 8 7 1 9 6 6 5 2 3 7 8 4 1 9 3 4 9 1 6 2 8 5 7 8 7 1 5 9 4 3 6 2 2 8 3 6 4 5 9 7 1 4 1 5 7 2 9 6 8 3 9 6 7 8 3 1 2 4 5 Grid n°100019821 medium

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.

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11 Lowes.co.uk

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