Structured Products Annual Performance Review 2022

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

70

60

50

40

30

20

10

0

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,

10