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A clever design for Investec boutique plan

Investec Structured Products –  Boutique Range – 5-Year Portable Beta Emerging Markets Edition December 2010

Type: Capital-protected bond

Aim: Growth linked to the performance of the MSCI Emerging Markets index, with return of capital linked to the performance of the FTSE 100 index

Minimum-maximum investment: £5,000-£10m

Term: Three years

Return: Option 1 – Investec version  33% growth plus original capital at the end of the term provided the index is above its initial value, Santander UK version 30% growth plus original capital at the end of the term provided the index is above its initial value, option 2 – Investec version – 18% growth plus original capital  provided the index is above 50% of its initial value, Santander UK version – 16.5%  growth plus original capital provided the index is above 50% of its initial value

Protection: Original capital returned in full at the end of the term provided the index does not fall by more than 50% by the final day of the term

Closing date: December 3, 2010

Commission: Fees agreed between adviser and client

Tel: 020 7597 4065

This structured product from Investec provides growth after five years linked to the MSCI Emerging Markets index while the return of capital is linked to another index, the FTSE 100. There are two versions of the plan, each with two options with different risk and reward profiles.

Considering the plan’s market suitability, Fair Investment Company investment administration manager Julie Smith says: “This plan is cleverly designed to provide IFAs and their clients an alternative way to access performance linked to emerging markets, while associating any downside risk to the performance of the more mainstream FTSE 100 Index.”

Smith thinks that with emerging markets such a hot topic at the moment, this plan may be popular with clients who want a certain level of exposure to this sector, but like the idea that risk to capital is linked an alternative index that could help with portfolio diversification.

“Useful features include the choice of counterparty from either Investec or Abbey National Treasury Services, which is a wholly owned subsidiary of Santander, increasing investor flexibility and enabling the choice of the level of risk to be taken,” says Smith.

Smith feels that the product’s 50 per cent capital protection, known as a 50 per cent European barrier, reduces the overall risk profile of the product, as any barrier breach has the benefit of only being monitored at the end of the term as opposed to throughout the investment term.

“The plan also fits with the retail distribution review model as no IFA commission is paid. This means a fee will have to be agreed between the client and adviser. It is available for direct investment, Self-invested personal pension and small self-administered schemes, as well as trustee and nominee investments,” says Smith. She adds that the literature is well laid out and easy to understand.

Turning to the potential drawbacks of the plan Smith says: “Returns are linked to MSCI Emerging Markets Index and return of capital linked to FTSE 100, aiding diversity to some degree. But it does add slightly to the complexity of the product. There is also currency risk to be considered. As growth returns are subject to a currency adjustment, the exposure to exchange rates could potentially reduce any returns the client receives at maturity.”

Discussing the likely competition, Smith says: “For those wanting a level of exposure to the global emerging markets sector, funds such as the Aberdeen emerging markets fund or the Baillie Gifford emerging markets fund may be a popular choice. “
Summing up, Smith says: “Overall, this product could be a useful way to access global emerging market returns without directly investing into equities and having the added advantage of a buffer against market downturns.”


Suitability to market: Good
Investment strategy: Average

Overall 6/10


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