Clarity from Incapital
Incapital Europe - Protected Growth Plan – FTSE 100 Series 6
Type: Capital-protected bond
Aim: Growth linked to the performance of the FTSE 100 index
Minimum- maximum investment: £10,000-no maximum, Isa transfer £5,000-no maximum, Isa 5,000- £10,680
Term: Six years
Return: The greater of 20% growth or 100% of the growth in the index capped at 50% of the original investment
Protection: Original capital returned in full at the end of the term regardless of the performance of the portfolio of the index
Closing date: February 9, 2012, closed to Isa transfers on February 2, 2012
Commission: Initial 3%
This six-year FTSE 100 linked structured product provides the greater of 20 per cent growth or 100 per cent of the growth in the index, capped at 50 per cent of the original investment. This is based on the final maturity level of the FTSE 100, after averaging over the last six months, being at or above its starting level.
Considering how it could be useful to IFAs and their clients, Informed Choice managing director Martin Bamford says: “With continued uncertainty in the eurozone and the resulting stockmarket volatility, it is understandable that some investors will want the perceived capital security associated with a structured product.
“The literature is some of the clearest I have seen to date in the structured products market, clearly spelling out the risks and potential rewards of theproduct.”
Bamford feels that if all goes to plan over the six-year period, with the product producing a return of 20 to 50 per cent, this would result in satisfied investors.
Turning to the potential drawbacks, Bamford says: “Six years is a long time to tie-up your cash, particularly in the current economic climate. “The use of structured products involves transferring one risk for another, in this case the counterparty risk associated with the backing of AA-rated Santander. With trust in the financial strength of the banking sector at an all time low, relying on a single banking institution for the security of your investment capital is possible a step too far for many investors.”
Bamford also believes that the lack of Financial Services Compensation Scheme protection on the counterparty risk will be another factor that could deter investors. He adds that the use of averaging is a necessary feature of structured products that can turn returns from reasonable to disappointing, depending on timing.
Discussing the main competition, Bamford says: “It is fairly easy to compare this with other current issues of structured products, as the six-year term and 100 per cent participation in the FTSE 100 are fairly common features.”
He points out that Cater Allen offers a deposit based enhanced growth plan with a six-year term and five times any rise in the FTSE 100, capped at 40 per cent of the original investment.
Summing up, Bamford says: “The risks to capital and returns available in different scenarios are well explained in the product literature. But the term of the product will deter those investors who want to keep their portfolios liquid, in case of further economic troubles.”
Suitability to market: Average
Investment strategy: Average
Adviser remuneration: Average