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Another outing for Barclays emerging markets optimiser

Barclays Wealth has brought out the November issue of its emerging markets optimiser plan.

This structured product is linked to an iShares emerging markets exchange traded fund for six years through a volatility strategy devised by Barclays.

The optimiser strategy will smooth the performance of the ETF by increasing exposure when volatility is lower than expected and reducing exposure when volatility is higher than expected. Investors will receive a 72.5 per cent of the growth in this strategy.

Barclays observes the volatility of the ETF over rolling 20-day periods and compares the actual volatility of the fund with a target level of 17 per cent. If the actual volatility of the fund is 17 per cent, investors will be fully exposed to the ETF.

Participation in the index will be increased by up to 150 per cent when volatility is lower than 17 per cent. It will be reduced when volatility is higher than 17 per cent. Exposure to the ETF will be changed only where the optimiser strategy indicates that the participation rate needs to be reduced or increased by more than 10 per cent, as more frequent changes would increase costs.

To calculate the returns, Barclays will create an optimiser index that adjusts the performance of the underlying ETF to take into account the effect the optimiser strategy. The initial level of this index is then compared with an average over the final year of the investment term. The difference between the two figures is the growth and investors will receive 72.5 per cent of this. Investors will also get a full capital return at the end of the term regardless of the performance of the optimiser strategy.

This product may suit investors who want to benefit from growth in emerging markets but who are worried about the volatility of direct equity investment. However, some investors may not understand the optimiser strategy and how the returns are calculated.

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