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Blue Sky applies minimum growth to bull & bear

Blue Sky Asset Management has created a FTSE 100 linked structured product that can provide growth regardless of the direction of the stockmarket.

The absolute return plan has a six-year term and provides growth of between 45 and 75 per cent provided the index is at or above its starting level by the final day of the term. The returns are based on the annual performance of the index, so that any movement up or down will be recorded as a positive return, but this is subject to a cap of 12.5 per cent a year.

For example, if the index rises or falls by 6 per cent, it will result in 6 per cent growth for that year. The starting level of the index is then re-based and the percentages from each year will be added together to produce the final return. However, if the index rises or falls by more than 12.5 per cent in a year, the return will be recorded as 12.5 per cent. Over a six-year term, this results in maximum growth of 75 per cent.

The product provides minimum growth of 45 per cent which means it does not matter if the index moves by less than 7.5 per cent a year. If the index is below its initial value on the final day of the term, no growth will be paid.

The original capital will also be returned in full provided the index has not fallen by more than 50 per cent by the final day of the term. If this condition is breached, investors will lose 1 per cent of their capital for each 1 per cent fall in the index.

This plan is unusual in combining a bull and bear approach with minimum growth that is not dependent on stockmarket growth. The ability to produce a positive return even if the index falls could appeal to some investors. However, if it finishes below its initial value, investors risk coming away with no growth and relying on the capital protection.

Twice monthly liquidity allows investors to sell or transfer their plan during the term, but the cash value depends on market conditions and may be less than the amount invested.


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