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Arc keeps options open for investors

Arc Capital and Income has established the Arc protected FTSE growth plan, a FTSE 100 linked capital-protected bond that provides two options with different levels of capital protection and returns.

The product has a term of five years and one week. Option one provides the greater of 18 per cent growth of the original investment or 50 per cent of the growth in the index, providing the closing level of the index on October 27, 2014 is higher than at the start of the term on October 27, 2009. It also provides a full capital return at the end of the term, regardless of the performance of the index.

Option two offers higher growth potential which is possible because the level of capital protection is lower. Investors will receive the greater of 42 per cent of the original capital or 50 per cent of the growth in the index, providing the final index level is higher than its initial value.

It also provides a full capital return at the end of the term provided the index does not fall by more than 50 per cent. It does not matter if the index falls by more than 50 per cent during the term, as only the initial and final index levels are used to determine index performance. If the final index level is more than 50 per cent lower than its initial value, capital will be reduced by 1 per cent for each 1 per cent fall in the index.

According to the Structured Retail Products adviser website, there is one five-year FTSE 100 linked product available to advisers which provides the greater of a percentage of the original investment or participation in the growth of an index, but this is due to close.

It is option two of Investec’s guaranteed five-year FTSE 100 plan 11, which offers full capital protection plus the greater of 15 per cent of the original investment or 35 per cent growth in the index. However, it uses averaging in final six months to provide the final index level rather than the level of the index on a single day, so it calculates returns on a different basis to the Arc product.

Choosing between the two options on the Arc product will depend on whether growth or the return of capital is the main priority for investors.


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