Structured Products Annual Performance Review 2019

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Covering all intermediary distributed products that matured in 2018

A comprehensive review of Structured Product performance

www.Lowes.co.uk

UK Structured Products Sector Maturity Analysis Covering all intermediary distributed products that matured in 2018

Welcome to Lowes Financial Management’s Annual Performance Review 2019, a rich and comprehensive overview of the retail structured product maturities of the past year. Each January we analyse our extensive database – which now extends to over 6,500 investments – to provide accurate, objective analysis and let the gures speak for themselves. Whilst markets in 2018 were signi cantly more volatile than the preceding year, it proved to be a tremendous year for structured products, with not one retail structured product maturing with a loss. Take a moment to appreciate what that means and contemplate how many other investment sectors could boast the same.

The number of maturing structures in 2018 was however, almost half that of the number maturing in the previous year and whilst that should not detract from the results it is acknowledged that this re ects a much ‘cleaner’ retail sector with the majority of plans exposed to mainstream indices.

Again, I am delighted that the Lowes selection process for ‘Preferred’ plans proved its worth with every ‘Preferred’ plan maturity delivering a gain with the average annualised gain being 7.88% over 3.4 years. The maturity results include the returns from the rst three issues of the 10:10 Plan, which were created as a cooperation between ourselves and Mariana Capital. The 10:10 Plan, autocall format increases the number of potential opportunities for positive outcomes, whilst repositioning market risk through extending the maximum terms to ten years. It is pleasing to note that since their introduction in 2015 many other providers have now accepted the Lowes logic, to the extent that terms beyond the traditional six-year maximum are now commonplace.

We are delighted to note that for the rst issues of the 10:10 Plans, the extended terms have not proved necessary. In the fourth quarter of 2018 all eight options of the rst three tranches matured at their rst opportunity, returning on average 8.75% per annum over three years.

With structured product investors having been so well served, there is a lot for providers and distributors to be proud of; all of us in the Lowes Investments Team hope that you will nd the analysis this review provides thoroughly informative. Here’s to another year of success.

Ian Lowes Managing Director Lowes Financial Management Limited

Published January 2019

Headline Data

Structured Product Maturities 2018 Number of Product Maturities

All Products

Lowes 'Preferred' Plans

381 358

107 107

Number that Generated Positive Returns Number that Returned Capital Only

0 0

Number that Lost Capital

3.78

Average Duration / Term (Years) Average Annualised Returns

3.4

6.33% 9.25% 2.89%

All Products

7.88% 10.10% 5.43%

Upper Quartile Lower Quartile

Key Takeaways • No product that matured in 2018 returned a loss.

• 93.96% of all products maturing in 2018 generated positive returns for investors, with 6.04% returning capital only.

• In 2018, all Lowes ‘Preferred’ plans that matured resulted in gains. On average the annualised returns of these maturities were 1.55% greater than the sector as a whole.

• The FTSE 100 Index in isolation is the most prevalent underlying measurement utilised, accounting for 67.98% of the maturities.

• The average annualised return of all products was 6.33%, over an average term of 3.78 years.

Continued...

Key Takeaways Continued

• The 266 capital-at-risk products collectively produced an average annualised return of 7.55% over an average term of 2.97 years. The upper quartile returned 9.66% per annum whereas the lower quartile returned 5.61% per annum.

• The 190 capital-at-risk products linked solely to the FTSE 100 produced an average annualised return of 7.44% over an average term of 3.01 years. The upper quartile returned 9.5% per annum, whereas the lower quartile returned 5.71% per annum.

• The 76 Lowes ‘Preferred’ capital-at-risk products linked solely to the FTSE 100 produced an average annualised return of 8.12% over an average term of 3.28 years. The upper quartile returned 10.01% per annum, whereas the lower quartile returned 6.29% per annum.

• The 69 capital ‘protected’ and deposit-based products linked solely to the FTSE 100 collectively produced an average annualised return of 4.54%. The upper quartile returned 5.77% per annum, whereas the lower quartile returned 3.36% per annum. • The Auto-call / Kick-out products made up 50.92% of all products maturing in 2018 and these ran for an average term of 2.27 years producing an average annualised return of 7.57%. • The average annualised returns from the Lowes ‘Preferred’ structured deposits was 4.81% and even the bottom quartile returned 3.04% per annum on average.

Notes

Lowes' database is maintained with details of all structured products launched in the UK that are promoted through Independent Financial Advisers and other wealth managers. It does not include private placement trades or products distributed solely through closed or restricted channels.

The ‘Stars’ are the relevant top performing plans in each sub-sector.

When referring to quartiles, we mean the average of the best / worst 25% of all respective maturities.

Past performance is not a guide to future performance.

E&OA

Continued...

SP—The Stars

Non FTSE 100 Only Plan

Investec Dual Index Step Down Kick-Out Plan 9 (Investec Option) Gain: 24.5% after 2 Years Index Link: FTSE 100 Index and EURO STOXX 50 Annualised Return: 11.58%

FTSE 100 Only Kick Out

FTSE 100 Growth Plan

Mariana 10:10 Twin Option FTSE Kick Out Plan

Investec FTSE 100 Geared Returns Plan 38 Option 1 Gain: 80% after 5 years Annualised Return: 12.44%

October 2015 (Option 2) Gain: 37.5% after 3 Years Annualised Return: 11.19%

SP—THE BLACK HOLE

Income Plan

Deposit Plan

s s

l o

Focus Dual Index Contingent Income Plan August 2016 Index Link: FTSE 100 and EURO STOXX 50 Quarterly Income of 2.15% for 2 Years

Investec Deposit Growth Plan 21 – Option 2

p r

n i

Gain: 38.72% after 5 years Index Link: EVEN 30 Index Annualised Return: 6.77%

Analysis and Annualised Performance 2018

All Plans

Lowes 'Preferred' Plans

By Product Type

Capital at Risk Capital 'Protected' Structured Deposits

82 69

Number of Products Returning Capital Only Number of Products which Lost Capital Number of Product Maturities Number of Products Producing Positive Returns

93 93

1 1 0 0

13 13

266 264

33 25

8 0

0 0

2.97

6.17

5.47

Average Duration / Term (Years) Average Annualised Returns All Products

3.07

5.92

5.60

7.55% 9.66% 5.61%

3.30% 5.64%

3.62% 5.62% 0.79%

8.33% 10.28% 6.44%

6.10%

4.81% 6.23% 3.04%

- -

Upper Quartile Lower Quartile

Lowes 'Preferred' Plans

All Plans

Number of Product Maturities Number of Products Producing Positive Returns Number of Products Returning Capital Only FTSE 100 Index only Number of Products which Lost Capital

Capital at Risk Capital 'Protected' Structured Deposits

54 54

76 76

1 1 0 0

13 13

190 190

15 15

0 0

3.01

6.38

5.38

3.28

5.92

5.60

Average Duration / Term (Years) Average Annualised Returns All Products Upper Quartile

7.44% 9.50% 5.71%

4.62% 5.89% 3.39%

4.52% 5.69% 3.39%

8.12% 10.01% 6.29%

6.10%

4.81% 6.23% 3.04%

- -

Lower Quartile

Lowes 'Preferred' Plans

All Plans

Number of Product Maturities Number of Products Producing Positive Returns Number of Products Returning Capital Only Non-FTSE 100 Index only Number of Products which Lost Capital

Capital at Risk Capital 'Protected' Structured Deposits

28 15 13

17 17

76 74

18 10

- - - - - - -

2 0

8 0

0 0

2.85

5.99

5.64

2.12

Average Duration / Term (Years) Average Annualised Returns All Products Upper Quartile

7.80% 10.02% 5.45%

2.20% 4.91%

1.88% 4.92%

9.29% 11.07% 7.97%

Lower Quartile

Analysis and Annualised Performance by Product Shape - Growth & Digital Growth Products

All Plans

Lowes 'Preferred' Plans

All Growth Plans

Capital at Risk Capital 'Protected'

Deposits

Capital at Risk Capital 'Protected'

Deposits

61 51 10

Number of Products Returning Capital Only Number of Products which Lost Capital Number of Product Maturities Number of Products Producing Positive Returns

17 17

1 1 0 0

13 13

31 31

31 25

0 0

6 0

0 0

5.59

6.31

5.68

Average Duration / Term (Years) Average Annualised Returns All Products

5.54

5.92

5.60

8.01% 10.95% 5.50%

3.51% 5.64% 0.54%

3.77% 5.86% 0.84%

8.98% 11.43% 7.13%

6.10%

4.81% 6.23% 3.04%

- -

Upper Quartile Lower Quartile

Lowes 'Preferred' Plans

All Plans

Number of Product Maturities Number of Products Producing Positive Returns Number of Products Returning Capital Only FTSE 100 Index only Growth Plans Number of Products which Lost Capital

Capital at Risk Capital 'Protected'

Deposits

Capital at Risk Capital 'Protected' Deposits

38 38

17 17

1 1 0 0

13 13

30 30

15 15

0 0

5.57

6.38

5.76

5.54

5.92

5.60

Average Duration / Term (Years) Average Annualised Returns All Products Upper Quartile

8.01% 10.95% 5.50%

4.62% 5.89% 3.39%

4.69% 5.87% 3.47%

8.98% 11.43% 7.13%

6.10%

4.81% 6.23% 3.04%

- -

Lower Quartile

All Plans

Lowes 'Preferred' Plans

Number of Product Maturities Number of Products Producing Positive Returns Number of Products Returning Capital Only Non-FTSE 100 Index only Growth Plans Number of Products which Lost Capital

Capital at Risk Capital 'Protected'

Deposits

Capital at Risk Capital 'Protected' Deposits

23 13 10

1 1

16 10

- - - -

- - - - - - -

- - - -

0 0 6

6 0

6.24

5.56

Average Duration / Term (Years) Average Annualised Returns All Products Upper Quartile

7.94%

2.48% 5.08%

2.23% 5.11%

- -

Lower Quartile

Analysis and Annualised Performance by Product Shape - Auto-calls / Kick-out Products

All Plans

Lowes 'Preferred' Plans

All Auto-Calls

Capital at Risk Capital 'Protected'

Deposits

Capital at Risk Capital 'Protected'

Deposits

182 180

2 0 2 0

Number of Products Returning Capital Only Number of Products which Lost Capital Number of Product Maturities Number of Products Producing Positive Returns

69 69

- - - -

8 2 0

- - - - - - -

2 0

0 0

2.18

4.01

3.60

Average Duration / Term (Years) Average Annualised Returns All Products

2.16

- - -

7.88% 9.73% 6.19%

0.00%

3.33% 4.38% 1.28%

8.43% 10.02% 6.82%

- -

Upper Quartile Lower Quartile

Lowes 'Preferred' Plans

All Plans

Number of Product Maturities Number of Products Producing Positive Returns Number of Products Returning Capital Only FTSE 100 Index only Auto-calls Number of Products which Lost Capital

Capital at Risk Capital 'Protected'

Deposits

Capital at Risk Capital 'Protected' Deposits

- - - - 0

8 8 0 0

52 52

125 125

- - - - - - -

- - - -

0 0

2.15

3.00

2.18

Average Duration / Term (Years) Average Annualised Returns All Products Upper Quartile

7.72% 9.40% 6.33%

4.16% 4.42% 3.85%

8.15% 9.53% 6.68%

- - -

- -

Lower Quartile

All Plans

Lowes 'Preferred' Plans

Number of Product Maturities Number of Products Producing Positive Returns Number of Products Returning Capital Only Non-FTSE 100 Index only Auto-calls Number of Products which Lost Capital

Capital at Risk Capital 'Protected'

Deposits

Capital at Risk Capital 'Protected' Deposits

2 0 2 0

17 17

57 55

0 2 0 4.00

- - - - - - -

2 0

0 0

2.24

6.00

2.12

Average Duration / Term (Years) Average Annualised Returns All Products Upper Quartile

8.25% 10.36% 6.04%

0.00%

9.29% 11.07% 7.97%

0.00% - -

- -

Lower Quartile

Analysis and Annualised Performance by Product Shape - Income Products

All Plans

Lowes 'Preferred' Plans

All Income Plans

Capital at Risk Capital 'Protected'

Deposits

Capital at Risk Capital 'Protected'

Deposits

11 10

Number of Products Returning Capital Only Number of Products which Lost Capital Number of Product Maturities Number of Products Producing Positive Returns

7 7 0 0

53 53

- - - - - - -

- - -

0 0

- - -

1 0

4.14

6.00

Average Duration / Term (Years) Average Annualised Returns All Products

6.00

- - -

6.11% 7.24% 5.13%

3.08% 4.91% 0.44%

5.78% 6.45% 5.30%

Upper Quartile Lower Quartile

Lowes 'Preferred' Plans

All Plans

Number of Product Maturities Number of Products Producing Positive Returns Number of Products Returning Capital Only FTSE 100 Index only Income Plans Number of Products which Lost Capital

Capital at Risk Capital 'Protected'

Deposits

Capital at Risk Capital 'Protected' Deposits

8 8

7 7

35 35

- - - - - - -

- - - -

0 0

3.87

6.00

Average Duration / Term (Years) Average Annualised Returns All Products Upper Quartile

- - -

5.98% 6.96% 5.00%

- - -

4.07% 5.13% 2.96%

5.78% 6.45% 5.30%

Lower Quartile

All Plans

Lowes 'Preferred' Plans

Number of Product Maturities Number of Products Producing Positive Returns Number of Products Returning Capital Only Non-FTSE 100 Index only Income Plans Number of Products which Lost Capital

Capital at Risk Capital 'Protected'

Deposits

Capital at Risk Capital 'Protected' Deposits

18 18

- - - -

2 1 0

- - -

- - - - - - -

0 0

4.64

6.00

Average Duration / Term (Years) Average Annualised Returns All Products Upper Quartile

6.37% 7.63% 5.45%

0.44%

- -

Lower Quartile

About Lowes Financial Management & Structured Products

‘As Chartered Financial Planners and Independent Financial Advisers, Lowes has been providing truly Independent Financial Advice to a range of people throughout the UK since 1971.’

Lowes has a broad variety of expertise which covers all aspects of wealth management. As independent nancial advisers, we assess the whole invest- ment space, ensuring that advice is individually tailored to our clients’ nancial goals; in doing so, we consider alternative as well as familiar invest- ments and retirement solutions. We seek to deliver positive experiences and outcomes for our clients, avoiding inappropriate exposure to risk. Our expertise in the structured product sector is widely acknowledged and respected. We have been evaluating all new entries to the retail market for more than twenty years, during which time we have not failed to advocate good investment opportunities and warn against harmful additions, as was the case with ‘precipice bonds’. Lowes has published details of our ‘Preferred’ plans for nearly two decades; we make appropriate use of structured products in the overall e ort to diversify client portfolios, which are bespoke and actively managed by our investment team. Our unique structured product portfolio management service, SP-Perspective, allows straightforward access for all our clients to their individual structured product holdings. Information on each product, such as investment value and levels of counterparty exposure, is provided to a granular level, providing unparalleled transparency. The system also keeps investors updated on the progress of their plans, regularly notifying them of significant portfolio events. We have now launched the Lowes UK Defined Startegy Fund which draws upon our unrivalled experience and the structured investment selection success enjoyed by Lowes clients, built up over several decades. The Fund is now available on many major investment platforms and 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.

Lowes Head O ce: Fernwood House

Lowes Financial Management Investment Team

Paul Milburn

Ian Lowes FPFS Managing Director

Doug Millward DipPFS Investment Manager

Colin McLachlan Lead Technician

Investment Analyst

Daniel Fenton Technician

JoshuaWynn Technician Contact Telephone: 0191 281 8811 Fax: 0191 281 8365

Blair Carmichael Technician

Geri Ryall Technician

Email: enquiry@Lowes.co.uk

Address: Lowes Financial Management Limited Fernwood House Clayton Road Jesmond Newcastle-upon-Tyne NE2 1TL

Web: Lowes.co.uk

Lowes Financial Management is Authorised and Regulated by the Financial Conduct Authori ty

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