Structured Products Annual Performance Review 2022

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Covering all intermediary distributed products that matured in 2021. A comprehensive review of Structured Product performance.

Lowes UK Defined Strategy Fund

Delivering solutions, delivering outcomes

For years structured investments have provided investors with exposure to defined returns under clearly defined market conditions. What better way to gain exposure and diversification to these strategies than through a UCITS fund. Now with a 3 year track record, Lowes UK Defined Strategy Fund provides just that. Available on most leading investment platflorms Defining investments, Defining returns Visit UKDSF.com

The value of this investment can fall as well as rise and investors may get back less than they originally invested. For a full list of potential risk factors please see the section entitled “Risk Factors” set out in the Prospectus for the ICAV.

2 The Lowes UK Defined Strategy Fund is a sub-fund of the Skyline Umbrella Fund (ICAV) and is regulated by the Central Bank of Ireland. The full suite of fund documentation can be accessed by visiting UKDSF.com/literature and is only available in English. Lowes Investment Management, Fernwood House, Clayton Road, Jesmond, Newcastle upon Tyne, NE2 1TL. Authorised and regulated by the Financial Conduct Authority.

Contents

Introduction to our analysis........................................................................................................................... 4

Headline numbers............................................................................................................................................ 5

Lowes Preferred Maturity Performance................................................................................................... 6

SP - The Stars......................................................................................................................................................7

A maturity mop up............................................................................................................................................ 8

An unwelcome re-emergence ............................................................................................................ 9 - 10

Analysis and Annualised Performance.....................................................................................................11

• Autocall / Kick-Out products............................................................................................................12

• Growth products..................................................................................................................................13

• Income products..................................................................................................................................14

About Lowes Financial Management and Structured Products.....................................................15

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 unless otherwise stated. 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. The annualised return is calculated using the total return over the holding period from the Strike Date to the Final Index Date. Past performance is not a guide to future performance. Investments of this nature carry risks to your capital.

UK Structured Products Sector Maturity Analysis Covering all intermediary distributed retail products that matured in 2021

Welcome to Lowes Financial Management’s Annual Performance Review 2022, which provides a thorough overview of the retail structured product sector covering all retail structured products that matured in 2021 . 2021 represented another unprecedented period for investors and the public more generally, with the hangover from 2020 continuing to linger. The entirety of Q1 was spent under a national lockdown, with the partial lifting of restrictions in April preceding ‘Freedom Day’ in July. The FTSE 100 Index has enjoyed significant recovery broadly aligning with the lifting of restrictions, albeit remaining below pre-pandemic levels. In 2020 the pandemic market correction impacted autocalls as the lower market position meant that many potential maturities were deferred until later observations. In 2021 the market uplift, particularly in the second half of the year, meant that a significant number of these autocall contracts matured with a higher gain that they would have realised the previous year. We are happy to reflect on another positive year for the sector, seeing significant improvements from last year’s review. In 2021, 529 plans matured returning an average annualised return of 6.2% over an average term of 3.4 years – an increase of 2.68% from 2020. Once again, the selection of Lowes ‘Preferred’ plans has proven a success, with 82 publicly available ‘Preferred’ plans maturing in total, outperforming the subsector averages in almost all instances. Lowes ‘Preferred’ maturities generated a sector busting average annualised return of 6.99% over an average term of four years; the upper quartile

of these maturities realised an average annualised return of 10.77% where the lower quartile returned 3.26%. The latter half of 2021 witnessed a sharp increase in the issuance of autocall plans with shorter maximum investment terms, particularly those with five-year terms. Throughout the previous decade we have seen the maximum possible term of autocall products increase to as many as ten years, which we view to have been for the benefit of the investors, for reasons elaborated on later in this review. It is our view that this re-introduction of five- year maximum duration autocalls is an unwelcome shift, at odds with the best interests of the sector and investors and we will continue to comment on it undesirably. That being said, this review is a largely positive piece, and we hope investors and providers alike concur in its reflection of a generally improving sector.

Ian Lowes, Managing Director

Headline numbers

All Products

Structured Products Maturities 2021

Lowes ‘Preferred’ Plans

529 483

Number of Product Maturities

82 76

Number of Products Generating Positive Returns Number of Products that Returned Capital Only

6 0

Number of Products that Lost capital Average Duration / Term (years)

3.39

4.04

Average Annualised Returns All Capital-at-Risk Products

6.82% 9.57% 4.23% 2.13% 4.87% 0.00% 6.20% 9.34% 2.56%

7.57% 11.30% 4.22% 3.89% 5.53% 0.94% 6.99% 10.77% 3.26%

Upper Quartile Lower Quartile

All Deposit Products

Upper Quartile Lower Quartile

All Products

Upper Quartile Lower Quartile

KeyTakeaways

of all maturing products in 2021, returning an average annualised return of 7.03% across an average 2.91 years. • Consistent with recent years, the FTSE 100 Index in isolation was the most prevalent underlying measurement utilised, accounting for 62% of all maturities. • 59.48% of capital-at-risk maturities were linked solely to the FTSE 100 Index and these produced an average annualised return of 7.01% over an average duration of 2.88 years. The upper quartile returned 9.57% per year, whereas the lower quartile returned 5.02% per year. • 70 deposit plans matured in 2021, 55 of which were linked solely to the FTSE 100 Index. The 70 collectively produced an average annualised return of 2.13% over an average duration of 4.69 years.

• 529 plans matured in 2021, representing a 125% increase from 2020. • 91.30% of all products maturing in 2021 generated all positive returns for investors, with 7.56% returning capital only and 1.13% returning a loss. • 6 maturing plans that realised a capital loss were share linked plans. • No Lowes ‘Preferred’ plans matured realising a capital loss; 6 returned original capital in full with no further gain. • The 459 maturing capital-at-risk plans collectively produced an annualised return of 6.82% over an average duration of 3.19 years. The upper quartile returned 9.57% per year, whereas the lower quartile returned 4.23% per year. • Autocall / kick-out products made up 75.61%

This review and comparative analysis considers only those structured products that were available for distribution via UK intermediaries. With the exception of the table overleaf it therefore ignores the investments which were exclusively available to

Lowes clients that matured in the year. There were five such investments, all of which were FTSE 100 linked and all of which matured on their second anniversary, delivering an average annualised return of 7.75%.

Lowes ‘Preferred’ Maturity Performance

The following shows the performance of the FTSE 100 structured products most commonly held by Lowes clients that matured during the year together with the performance of the index over the same investment term. The table includes five investments that were exclusively available to Lowes clients which have not been taken into account elsewhere in this review and comparative analysis.

Provider

Maturity Date 14 January 2021 28 January 2021 08 March 2021 10 March 2021 11 March 2021 17 March 2021 23 March 2021 23 March 2021 19 April 2021 22 April 2021 10 May 2021 19 May 2021 24 May 2021 03 June 2021 07 June 2021 07 June 2021 07 June 2021 29 July 2021 28 June 2021 17 June 2021 28 June 2021 19 July 2021 29 July 2021 02 August 2021 04 August 2021 16 August 2021 18 August 2021 23 August 2021 23 August 2021 06 September 2021 22 September 2021 04 October 2021 18 October 2021 18 October 2021 26 October 2021 26 October 2021 27 October 2021 04 November 2021 08 November 2021 16 November 2021 17 November 2021 21 December 2021 21 December 2021

Term (Years)

FTSE 100 Change

Plan Gain

Morgan Stanley

6 2 3 4 2 4 3 3 3

6.47% -3.27% -6.72% -8.41% -5.52% -8.92% -3.22% -3.22% -4.34% -1.48% -4.16% -6.97% 1.42% 0.03% -5.93% -5.93% -3.47% -7.91% -6.17% -2.77% -6.17% -5.24% -7.91% -4.39% -5.16% -5.33% 2.70% 2.70% -1.31% -3.12% -2.02% 0.74% 0.74% 4.87% 4.87% -3.35% -1.22% -0.80% 4.46% -1.21% 8.57% 8.57% 2.11%

30%*

Investec Investec Meteor Investec

16%

22.5%

25%

17%

Focus

25%

Augere

19.5% 19.8%

Walker Crips

Investec Investec

24% 20% 23% 28% 18% 20% 31% 26% 16% 14% 23% 14% 23% 29% 14% 26% 23% 30% 26% 30% 16% 26% 16% 17%

2.5 3.5

Walker Crips

Mariana

Walker Crips

2.5 2.5

Investec Investec Investec Investec Investec Investec Investec Investec Investec

4 4 2 2 3 2 3 4 2 2 4 3 4 4 4 2 4 2 2 2 3 3 4 2 2 3 4 3 3

Walker Crips

Walker Crips Walker Crips

Investec Mariana Investec Investec

Walker Crips Walker Crips Walker Crips

Societe Generale Societe Generale Societe Generale Societe Generale

20.5% 15.8% 31.8% 25.5%

Walker Crips

26%

Investec

14.6%

Walker Crips

16%

Mariana Mariana

24.51%

28%

Societe Generale Societe Generale

35.4% 27.45%

* Deposit based plan interest payment – all other returns shown in the table are capital gains

SP-The Stars The best performing structured products of 2021

Non-FTSE 100 Only Plan Hilbert Investment Solutions

Kick Out Series: 3 Stock Defensive Autocall Issue 6 Underlying link: Three FTSE 100 shares

Gain: 10% after 6 months Annualised return 21.19%

FTSE 100 Growth Plan Reyker Securities

FTSE 100 Kick Out Plan Dura Capital Natixis FTSE 100 Autocall Plan 44 Gain: 14.5% after 1 year Annualised return 14.5%

FTSE 100 Supertracker Plan October 2015 Gain: 80% after 6 years Annualised return 10.28%

Deposit Plan Meteor

Income Plan Meteor

FTSE SuperTracker Deposit Plan December 2015 Interest payment: 51.85% after 6 years Index link: FTSE 100 Index Annualised return 7.2%

FTSE STOXX Quarterly Contingent Income Plan November 2019 Underlying link: FTSE 100 Index & Euro STOXX 50 Index Quarterly income of 2.03% for 2 years totalling 16.24%

SP-The Black Hole The worst performing structured product of 2021 Mariana

FTSE 3 Step Down Kick-Out Plan 2 Loss: 52.92% after 6 years Underlying link: Three FTSE 100 companies Annualised return -11.8%

2021: A maturity mop up

All 227 capital-at-risk autocall maturities linked solely to the performance of the FTSE 100 Index realised a capital gain for investors, returning an average annualised return of 7.23% over an average term of 2.47 years. Conversely, the loss-making maturity and the eight that returned capital-only were linked to the performance of multiple indices or individual shares. The 168 non-FTSE only capital-at-risk autocall maturities returned an average annualised return of 6.85% over an average term of 3.49 years.

A function of the market crash in Q1 2020 meant that a significant number of autocall products saw their respective potential maturities deferred until 2021 or later. Generally coinciding with the easing of lockdown restrictions, 2021’s market recovery saw 400 autocall products mature – 312% more than in the preceding year. Resultantly we’re able to provide a significantly more positive reflection for the sector in this year’s Annual Performance Review, more consistent with those enjoyed pre-covid-19. 395 capital-at-risk autocall contracts matured in 2021, returning an average annualised return of 7.07% across an average term of 2.9 years. 97% of such maturities delivered a capital gain for investors, with just 1 realising a capital loss – the remaining 8 simply returned investors’ original capital in full.

An unwelcome re-emergence…

Annualised returns of Autocall maturities in 2021

at-risk autocalls released into the sector had a maximum duration of over six years, whereas by 2019 84% of all new issues had a maximum duration of more than 6 years. However, over the last year there has been a significant re-emergence of autocall products being released into the UK retail space with reduced maximum investment terms of not just 6 years, but 5 years.

Over the previous decade Lowes Financial Management have been consistent in our advocacy of an extended maximum investment term for new issue autocall structured products. In our Retail Structured Product Reviewof the Sector 2010 – 2019 we outlined several crucial developments enjoyed by the sector, including the extended maximum investment term of capital-at-risk autocalls. By way of illustration, between 2010 and 2014 no capital-

FTSE 100 Only Capital-at-Risk FTSE 100 Only Deposits

Non FTSE 100 Only Capital-at-Risk Non FTSE 100 Only Deposits

25 20

15 10 5 0 -5

Maximum length of capital-at-risk autocall structured products issued since 2012

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

-10 -15 Annualised Returns (%)

of polarisation in the data for non-FTSE only plans; higher returns can be achievable, albeit negative returns are at an increased likelihood. The loss-making autocall contract was linked to the performance of three FTSE 100 companies, and lost capital due to the adverse performance of Standard Chartered Plc which was down 52.92% over the investment term. At the opposite end of the risk return trade-off, the deposit-based maturities ensure capital protection at the cost of lower returns on offer. The plot illustrates that of course while no deposit maturities lost capital, a greater number of them returned original capital with no further interest payment. It is noteworthy that all seven of the FTSE 100 only linked deposit plans that matured with no further interest payment were issued in 2018 with maximum terms of just three years, and should they have had longer to run may have matured positively…

The plot above offers an insight into the distribution of annualised returns of all autocall products maturing in 2021, split into FTSE 100 only and non- FTSE 100 only linked plans, with deposit maturities included for reference. Whilst not completely symmetrical, the plot indicates a greater degree of consistency in the maturity performance of FTSE only linked capital-at- risk autocalls, than the non-FTSE only alternatives. This pattern has been present throughout the recent history of the sector and is a function of the underlying(s) utilised in non-FTSE only plans – 147 of these maturities were linked to the performance of multiple indices or individual shares which are more volatile by nature. Share-linked and multi-index plans are inherently riskier than plans linked to a single index, such as the FTSE 100, and as such, potentially reward investors for the excess risk with larger coupons offered. Therefore, this explains the greater degree

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Under 6 Years

6 Years

Over 6 Years

2020. The first 5-year maximum term capital-at- risk autocall issued since 2015 was in late 2020, and throughout 2021 a further 58 autocalls with a maximum term of 5 years were issued.

Whilst we can only speculate as to the causation of this trend, we can observe correlation, and it appears as though issuing banks are increasingly erring on the side of caution when hedging their long-term risk following the market correction of

Number of capital-at-risk autocall products with a five year maximum term issued by year

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

say, eight years for a dramatic downturn to recover, versus just three could prove very comforting. In summary, it is fundamentally our view that common sense should prevail here; the longer a plan has to run, the greater the chance of positive maturity through recovery in the event of a market crash, whilst benefiting from accumulating coupons. Those who invested prior to the market crash in 2020 would have far more reassurance from their fixed term investment with ten years to run, than those with just five. Whilst ultimately, we hope that no situation arises whereby short term autocalls are caught by adverse conditions to loss-making effect, we will continue to advocate the obvious benefit in the extended maximum term.

In our view, this recent trend is potentially problematic for the sector because the move to a longer maximum duration autocall contract repositioned the investors’ exposure to market risk in the event of a market downturn in the early years, perhaps as a result of another black swan event. The extended maximum term allows a longer period for the underlying to recover under adverse market conditions and the impact of snowball coupons meaning that the gain achievable will increase year on year. Of course, conversely, a shorter investment term allows less time for a market recovery with fewer maturity observations and a restricted scope for the accumulation for snowball coupons. Regardless of the ultimate outcome, the peace of mind of having,

Analysis and Annualised Performance 2022

By Product Type

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

459 444

69 65

70 39

Number Generated Positive Returns Number Returned Capital Only

11 2 0

9 6

4 0

Number Lost Capital

Average Duration / Term (Years)

3.19

3.85

4.69

5.08

Average Annualised Returns

All Products

6.82% 9.57% 4.23%

7.57% 11.30% 4.22%

2.13% 4.87% 0.00%

3.89% 5.53% 0.94%

Upper Quartile Lower Quartile

FTSE 100 Index only

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

273 272

55 35 20

Number Generated Positive Returns Number Returned Capital Only

11 2 0

Number Lost Capital

Average Duration / Term (Years)

2.88

3.78

4.48

5.08

Average Annualised Returns

All Products

7.01% 9.57% 5.02%

7.49% 9.98% 5.29%

2.58% 5.10% 0.00%

3.89% 5.53% 0.94%

Upper Quartile Lower Quartile

Non- FTSE 100 Index only

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

186 172

7 4 3 0

Number Generated Positive Returns Number Returned Capital Only

- - - - - - -

8 6

11 0

Number Lost Capital

Average Duration / Term (Years)

3.65

4.43

5.47

Average Annualised Returns

All Products

6.54% 9.48% 3.14%

8.31%

0.50% 1.88% 0.00%

Upper Quartile Lower Quartile

19.54% 0.00%

Analysis and Annualised Performance by Product Shape - Autocall/Kick-Out Products

By Product Type

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

395 386

52 49

5 4

4 4 0 0

Number Generated Positive Returns Number Returned Capital Only

3 0

Number Lost Capital

Average Duration / Term (Years)

2.90

3.14

3.60

3.00

Average Annualised Returns

All Products

7.07% 9.69% 4.88%

7.62% 11.67% 4.58%

3.99% 5.67% 0.00%

4.99% 5.67% 4.31%

Upper Quartile Lower Quartile

FTSE 100 Index only

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

227 227

46 46

4 4 0 0

Number Generated Positive Returns Number Returned Capital Only

0 0

Number Lost Capital

Average Duration / Term (Years)

2.47

3.00

Average Annualised Returns

All Products

7.23% 9.70% 5.45%

7.58% 10.01% 6.03%

4.99% 5.67% 4.31%

Upper Quartile Lower Quartile

Non- FTSE 100 Index only

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

168 159

6 3 3 0

Number Generated Positive Returns Number Returned Capital Only

- - - - - - -

Number Lost Capital

Average Duration / Term (Years)

3.49

4.17

6.01

Average Annualised Returns

All Products

6.85% 9.56% 4.16%

7.94% 19.54% 0.00%

0.00%

Upper Quartile Lower Quartile

- -

Analysis and Annualised Performance by Product Shape - Growth Products

By Product Type

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

17 16

53 25 28

9 7 2 0

Number Generated Positive Returns Number Returned Capital Only

Number Lost Capital

Average Duration / Term (Years)

6.01

4.61

6.01

Average Annualised Returns

All Products

7.56% 9.76% 3.70%

7.42% 9.89% 3.06%

1.75% 4.72% 0.00%

3.40% 5.12% 0.00%

Upper Quartile Lower Quartile

FTSE 100 Index only

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

18 17

16 15

41 21

9 7 2 0

Number Generated Positive Returns Number Returned Capital Only

Number Lost Capital

Average Duration / Term (Years)

6.01

4.40

6.01

Average Annualised Returns

All Products

7.23% 9.38% 3.70%

7.23% 9.52% 3.06%

2.08% 5.07% 0.00%

3.40% 5.12% 0.00%

Upper Quartile Lower Quartile

Non- FTSE 100 Index only

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

3 3 0 0

1 1

Number Generated Positive Returns Number Returned Capital Only

4 8 0

- - - - - - -

0 0

Number Lost Capital

Average Duration / Term (Years)

6.01

5.34

Average Annualised Returns

All Products

9.55% 10.49%

10.49%

0.63% 2.18% 0.00%

Upper Quartile Lower Quartile

- -

8.91%

Analysis and Annualised Performance by Product Shape - Income Products

By Product Type

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

43 38

12 10

Number Generated Positive Returns Number Returned Capital Only

- - - - - - -

0 5

2 0

Number Lost Capital

Average Duration / Term (Years)

4.46

5.51

Average Annualised Returns

All Products

4.14% 6.10% 0.87%

3.05% 4.38% 0.65%

Upper Quartile Lower Quartile

FTSE 100 Index only

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

28 28

10 10

Number Generated Positive Returns Number Returned Capital Only

- - - - - - -

0 0

Number Lost Capital

Average Duration / Term (Years)

4.21

5.40

Average Annualised Returns

All Products

5.07% 5.93% 4.39%

3.65% 4.38% 2.84%

Upper Quartile Lower Quartile

Non- FTSE 100 Index only

Capital at Risk

Structured Deposits

Structured Product Maturities

Lowes ‘Preferred’ products

All products

Number of Maturities

15 10

2 0 2 0

Number Generated Positive Returns Number Returned Capital Only

- - - - - - -

0 5

Number Lost Capital

Average Duration / Term (Years)

4.92

6.01

Average Annualised Returns

All Products

2.40% 6.19% -2.88%

0.00%

Upper Quartile Lower Quartile

- -

About Lowes Financial Management & Structured Products

Over the last two decades we have published over 8,000 product reviews, whilst identifying which of these we ‘Preferred’ and as such, prepared to utilise in client portfolios. In more recent years, we have used our sector knowledge to help bring to the market new product shapes, such as the Mariana 10:10 Plan which influenced significant improvements to other new issues across the sector. We also manage the Lowes UK Defined Strategy Fund, an innovative UCITS fund of structured investment strategies, which draws upon our unrivalled experience and structured investment selection success. The Fund 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. It is available on many major investment platforms. To access further information visit www.UKDSF.com.

Lowes, established in 1971 are independent, chartered financial planners and investment managers with a broad variety of expertise across all aspects of wealth management. As independent financial advisers, we assess the whole investment space to ensure that our advice is individually tailored to our clients’ financial goals. In doing so, we consider alternative as well as familiar investments and retirement solutions. 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. Over this period we have played a significant role in helping to educate the wider adviser community about the sector, whilst helping to shape it for better investor outcomes, by championing good product design and governance and warning against some of the less desirable, historic sector additions.

Call: 0191 281 8811 Email: enquiry@Lowes.co.uk Visit: www.Lowes.co.uk ‘Say hello’...

Address:

Lowes Financial Management, Fernwood House, Clayton Road, Newcastle upon Tyne, NE2 1TL

Lowes Financial Management Ltd is authorised and regulated by the Financial Conduct Authority

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