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Non FTSE and FTSE 100 structured product performance diverges further in Q2

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Fifty-two out of 54 of the IFA distributed products linked solely to the FTSE 100 maturing in the second quarter of 2016 made a gain, while only seven out of 19 non-FTSE 100 products made a gain, according to research from Lowes Financial Management’s StructuredProductReview.com.

Volatility continued to characterise 2016 in the second quarter, but overall the FTSE 100 has been trading higher than it was in the first quarter of this year. Fifty-two of the IFA-distributed structured products linked solely to this index of the UK’s largest companies made a gain for investors, while two returned just original capital. None gave rise to a loss.
 
The FTSE 100 linked maturities on average made annualised gains of 5.06 per cent (Q1: 4.92 per cent) over an average term of 5.23 years. The top 25 per cent delivered an average return per annum of 8.16 per cent (Q1: 7.58 per cent) over an average term of 5.21 years, while the bottom 25 per cent made 1.43 per cent (Q1: 1.9 per cent) over 5.08 years.
 
Looking only at those 19 products linked to a measurement outside the FTSE 100, 7 out of 19 made a gain for investors, nine returned capital only and three made a loss.
 
The average annualised gains of all the 73 products maturing in the second quarter was 3.89 per cent (Q1: 3.67 per cent) over an average term of 5.21 years. The top 25 per cent made average annualised gains of 7.57 per cent (Q1:7.49 per cent) over an average term of 5.22 years, while the bottom 25 per cent made an average loss per annum of 0.84 per cent (Q1: -1.92 per cent) over an average term of 4.89 years.
 
Two products that matured making a loss in the second quarter of this year were version 3 and 4 of the Merchant Capital Growth Plan – Agricultural Commodities. These offered investors the potential for growth equivalent to 1.3 (version 3) and 1.1 (version 4) times above 95 per cent of the initial level of an equally weighted basket of four agricultural commodities, being corn, sugar, cotton and soybeans- applied to 95 per cent of the original investment. The minimum return was 95 per cent of original capital, the actual outcome of the plan, which arose since the average basket price fell by more than 5 per cent.
 
The other product which delivered a loss was the Meteor FTSE 5 Quarterly Kick-Out Plan, which was linked to a basket of five shares: BHP Billiton, GlaxoSmithKline, HSBC Holdings, Royal Dutch Shell and Tesco PLC. It offered a 5 per cent gain for each quarter held, payable on the first quarterly observation date on which all five shares close at, or above, 95 per cent of their corresponding initial prices. The poor performance of such shares meant that investors only received 37.2 per cent of their original investment capital back.
 
The top performing product to mature in the second quarter was the Investec FTSE 100 Geared Returns Plan 24 – Option 1 continuing a winning streak for this plan series, with the previous two versions being the best performers in the first quarter of 2016. This growth plan offered a 70 per cent gain at maturity if the FTSE 100, subject to averaging over the final six months, was higher than its start level. This is equivalent to 11.16 per cent per annum.
 
StructuredProductReview.com founder Ian Lowes says: “The second quarter of the year maturities are showing a divergence between FTSE 100 and non-FTSE 100 product performance. While there are potential higher rewards to investing outside FTSE 100, this also comes with additional risks evidenced by those products linked to commodities and individual shares, which have resulted in a loss in this quarter’s maturities. 
 
“We are finding many more defensive structured products are being launched into the market, possibly because of stronger demand in light of their ability to make positive returns in slightly falling market conditions. While the coupons for such products are lower than for straightforward plans which require market growth, a protective corner of an investor’s portfolio that will still deliver returns even in depressed market conditions is an attractive proposition worth considering. 
 
“The recent volatility has served as a stark reminder of the importance of such diversification and with their in-built barrier protection, capital-at-risk structured products can provide downside protection to protect capital against loss from all but the most extreme market conditions, usually a fall of 40 per cent to 50 per cent.”

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