The bond provides 100 per cent of the growth in the index at the end of the term and investors also recieve a full capital return regardless of the performance of the index.
To calculate the returns, the closing level of the index is recorded at the start of the term and compared with an average of the closing levels of the index during the final year of the term.
The difference between the two figures indicates the final return investors will receive on top of their original capital.
According to the product database on the Structured Retail Products adviser website, Abbey’s offering is unique as no other structured products are linked purely to the US stockmarket. Some products have exposure to the US by including the S&P 500 in a global basket of indices, but these do not provide a good comparison for the Abbey bond because the final returns are also influenced by other stockmarkets.
The S&P 500 is notoriously difficult for active fund managers to outperform so some investors may see this product as an alternative means of getting US exposure into their portfolios, with the added bonus of capital protection. With no other structured product providers exploring this space, Abbey may fill a gap in the market to meet demand for US exposure with capital protection among retail investors.
Although investors do not risk losing their capital if the stockmarket underperforms, there is a risk that they could end up with nothing to show for five years of investment but their original capital if the index does not grow. This is not bad for a worst-case scenario, but inflation could erode the value of the original investment in real terms by the end of the investment period.