Structured Products Annual Performance Review 2020

Commentary

The good, the bad and the ugly By Blair Carmichael

10:10 Maturities in 2019 It’s over four years since the first 10:10 Plan was launched as a co-operation with Lowes and Mariana Capital and there have been 99 options of the plan issued to date, used by hundreds of financial advisers around the UK, ultimately achieving high levels of client satisfaction. Whilst the 10:10 launch introduced the concept of an extended maximum possible term for autocalls, providing greater potential for positive maturity in the event of short to medium termmarket turmoil, the extended maximum term has thus far, thankfully, proven unnecessary, with almost every issue maturing at its first potential opportunity.

The results of all 10:10 Plans which matured in 2019 are as follows:

We have been reflecting on what has been another, overall favourable year for investors in UK retail structured products. Whilst the majority of plans in 2019 performed well, there have been some standout performers, be it for better or worse… We’ll start with the ‘good’. There were 14 structured products which achieved an annualised return for investors of 10%, or greater. The strongest of which was the Meteor FTSE/STOXX Kick Start Plan October 2018, which o ered a front-loaded return in the first year of 15% with 10% per additional year thereafter. Maturity would be triggered by both the FTSE 100 and Eurostoxx 50 Indices closing above their initial index levels on a plan anniversary and this was the case on the first anniversary in October when the plan matured returning the 15% gain. Whilst the majority of the plans producing the highest returns were linked to multiple underlyings, incorporating a ‘worst-of ’ element, some of the strongest performers were solely linked to the performance of the FTSE 100 Index. For example, the best performing FTSE 100 plan was option 3 of the April 2016 issue of the Mariana Capital 10:10 Plan, which o ered a 12.6% gain for each year held, payable on any anniversary from year three onwards, provided that the FTSE closed 10% or more above the initial index level. This plan matured on its first opportunity, giving an annualised return of 11.28% over the three-year holding period. The bad news, however, is that August saw the first loss making maturity in over two years; the previous being in May 2017. This represented the end of a run of 907 retail maturities without loss and the August loss making maturity was followed by three more during the rest of the year. All of these losses were due to a function of the inherent greater risk taken by the plans, being linked to the performance of a basket of shares, rather than a market index. The worst performer of the year was a plan from Meteor; the FTSE 5 Enhanced Quarterly Defensive October 2013. This plan o ered a potential return of 4% for every three-month period it was held, with the potential for early maturity from the first year onwards if the five shares were above their initial index levels. Unfortunately, being a “worst-of” share-linked plan, investors were exposed to the full fall in the price of the worst performing share - Standard Chartered plc, resulting in a loss of 56.3% – an equivalent annualised return of -12.88%. And now the ugly… It’s not too often that retail investors hope for markets to fall, but shortly after investing, this will have been the case for many investors in either of Meteor’s Dual Index Income Deposit plans from January or March of 2013. Plans such as these are often referred to as ‘range-bound’ plans, as annual income payments would have been made provided that the FTSE 100 and the S&P500 indices were within certain ranges – e.g. FTSE 4,900 to 7,200 and S&P 1,200 to 1,680). Unfortunately, because both underlying indices (particularly the S&P500) performed so well shortly after the plan commenced, there were no instances in which both indices were simultaneously within the required range to generate an income on any observation date. This therefore meant that investors in these structured deposits received no income, and e ectively had their money locked away in zero-interest bank accounts for six years. There were 334 retail structured product maturities throughout 2019 and whilst the aforementioned bad, ugly and a few more like them dragged down the performance of the sector as a whole, 315 of the 334 (94.3%) matured positively with capital-at-risk plans returning an average of 6.74% and deposits returning 3.01% per annum.

Maturity date (2019)

Issue

Strike Date

Index

Result

Duration

February 2016 (Option 1) February 2016 (Option 2) February 2016 (Option 3) April 2016 (Option 1) April 2016 (Option 2) April 2016 (Option 3) Dual Index April 2016 (Option 1) Dual Index April 2016 (Option 2) Dual Index April 2016 (Option 3)

12/02/2016 12/02/2016 12/02/2016 15/04/2016 15/04/2016 15/04/2016

FTSE 100 FTSE 100 FTSE 100 FTSE 100 FTSE 100 FTSE 100

12/02 12/02 12/02 15/04 15/04 15/04

21.00% 3 years

27.00% 34.35% 23.40%

3 years 3 years 3 years

30.00% 3 years 37.80% 3 years

FTSE 100 EURO STOXX 50 FTSE 100 EURO STOXX 50 FTSE 100 EUROSTOXX 50

15/04/2016

15/04

28.05%

3 years

15/04/2016

15/04

36.15%

3 years

15/04/2016

15/04

45.75%

3 years

May 2016 (Option 1) May 2016 (Option 2) May 2016 (Option 3) July 2016 (Option 1) July 2016 (Option 2) July 2016 (Option 3)

27/05/2016 27/05/2016 27/05/2016 15/07/2016 15/07/2016 15/07/2016 02/09/2016 02/09/2016 21/10/2016 21/10/2016 16/12/2016 16/12/2016 22/12/2017

FTSE 100 FTSE 100 FTSE 100 FTSE 100 FTSE 100 FTSE 100 FTSE 100 FTSE 100 FTSE 100 FTSE 100 FTSE 100 FTSE 100 FTSE 100

28/05 28/05 28/05 15/07 15/07 15/07 02/09 02/09 21/10 21/10 16/12 16/12 23/12

22.50% 3 years 29.10% 3 years

37.05%

3 years

21.15% 3 years 27.90% 3 years 35.10% 3 years 21.30% 3 years 28.20% 3 years 21.00% 3 years 27.30% 3 years

September 2016 (Option 1) September 2016 (Option 2) October 2016 (Option 1) October 2016 (Option 2) December 2016 (Option 1) December 2016 (Option 2) December 2017 (Option 2)

21.90%

3 years

29.40% 3 years 16.50% 2 years

Performance of all structured products should, subject to counterparty solvency, be in line with the stated, defined terms given the prevailing market/underlying index performance. Please remember that no two products and investment periods are the same, and as such, past performance is not a guide to the future.