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A fixed return from Morgan Stanley

Morgan Stanley IQ – FTSE Defensive Digital Growth Plan

Type: Capital-protected bond

Aim: Growth linked to the performance of the FTSE 100 index

Minimum-maximum investment: £3,000-no maximum, Isa £10,200

Term: Six years

Return: 60% fixed growth provided the index does not fall by more than 20%

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: January 10, 2011, December 31, 2010 for Isa transfers

Commission: Initial 3%

Tel: 020 7425 9000

This structured product provides 60 per cent fixed growth after six years, provided the index does not fall by more than 20 per cent. A full capital return is also provided as long as the index does not fall by more than 50 per cent by the final day of the term.

Discussing the positive features of the plan, Baronworth Investments director Colin Jackson says: “As I have now come to expect from Morgan Stanley, the literature is attractively produced and easy to understand.  The plan offers an attractive fixed growth return of 60 per cent if the FTSE 100 index has risen, remained unchanged or fallen by 20 per cent or less over the six-year investment term.”

Jackson points out that at maturity, as long as the index is not 50 per cent or below its level at the plan start date, investors will receive full repayment of their initial investment.  “If it has fallen by 50 per cent or more, repayment of the investment will be reduced by the amount the index has fallen.”

Jackson also likes the style of capital protection. “This plan relies on the European style capital barrier, not American, which means that the final index level is measured at maturity.  What happens during the term of the plan has no effect – it only matters on maturity.  This particular plan not only offers an attractive potential return but also allows the index to fall by 20 per cent over the term without risking growth return or return of the original investment”

He adds that the growth is taxed as a capital gain, not as income. “This is an enormous advantage as most people do not use their CGT exemption and this will allow an investors Isa allowance to be used elsewhere.  The counterparty is Morgan Stanley, which is rated A by S&P.  The commission of 3 per cent is in line with the market,” he says.

Jackson can find nothing specific to dislike about the plan. “There are a number of structured products on the market of a similar type but none of them allow the index to fall and still pay the fixed growth return,” he says.

Summing up, Jackson says: “This is an attractive product being offered by a respected name and should prove to be extremely popular with those investors looking for growth.”


Suitability to market: Good

Investment strategy: Good

Adviser remuneration: Good 

Overall 9/10 says this is one of its preferred plans. This means that following research and cross-referencing against other plans available at the date of its review, IFA Lowes Financial Management, which runs this website, would usually expect to use the plan when advising clients.

It says: “The new Morgan Stanley FTSE defensive digital growth plan offers an attractive gain even if the market is down by up to 20 per cent and as such, we feel that it will have reasonable market appeal, particularly given that it has an ’end of term’ barrier. Counterparty risk should not be ignored, but we believe this plan is worthy of consideration as part of a diversified portfolio.”



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