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Counterparty animal

A friend said to me the other day: “I bumped into X on the station platform as I was coming to meet you. He told me to tell you that you lost him half a million pounds.” That sort of news would, I’d imagine, in the normal run of events, cause me to show a degree of concern, even if I had – as I had that day – been suitably anaesthetised by a rather good lunch.

This particular time – the only time I suspect or at least hope, that I will ever stand accused of losing someone half a bar – I just shrugged. The chap in question had, about four or five years ago, asked me what I thought of two structured products as a place to stash some of the cash he had made, I think, from selling his company.

No, I completely agree with you. If someone has £500,000 to invest, I too would like to think they might shell out for a little financial advice but, no, not this time. X just sent me an email. At this point, I should stress, I do not offer people financial advice. I mean, fair’s fair – you don’t write for Money Marketing, do you?

However, sometimes friends make the mistake of starting a conversation: “Hey, you know a bit about investment…” and I have been known to venture an opinion. “That Rory Powe has been doing fantastic things with Invesco European growth,” I said in early 2000. “Who is the more foolish – the fool or the fool who follows the fool?” Obi-Wan Kenobi said a long time ago, in a galaxy far, far away.

“If you think a structured product is right for you, then the important thing is to make sure that the counterparty underpinning it is sound,” I emailed back to X. “In your case, you have diversified between two pretty solid groups – Lehman Brothers and AIG.” Yes, you were probably way ahead of me on that one but, still, confession is good for the soul.

So what is it that leads me to this musing about structured products – apart, that is, from concern for the wellbeing of my soul? Two things, I think – the first being the most recent statistics from the Investment Management Association, which contained the interesting news that, in net terms, the most popular Isa sector in February was protected/guaranteed funds.

I am not 100 per cent certain why that takes my attention, nor indeed why, digging a little deeper, bells ring because the same month around £73m of gross retail sales through salesforces and tied agents went into the same sector – £2m, give or take, more than went into the sterling corporate bond grouping, the next biggest seller through that channel.

For the sake of completeness, the £71m or so of net sales that went into that same sector through salesforces and tied agents was about four times the amount sold of the next biggest grouping – UK equity income & growth. So, subconsciously, am I disrespecting the work of the good, good people in salesforces and tied agency positions? Possibly.

And do I find myself wondering whether such figures indicate that the worst of investor sentiment is behind us? After typing those last sentences, it appears that I do.

The second reason for my structured product musings has been the uptick in the number of what are now known simply as income plans, despite their being faintly reminiscent of something else.

Nostalgia not being what it used to be, I am sure there is a world of difference between this new breed of products and those crazy precipice bonds but I trust everybody who is recommending them has got at least one eye on every aspect of the small print.

I am afraid alarm bells only really started going off for me in about 2002 when the bonds stopped being linked to the Footsie – the associated derivatives having become too expensive – and instead tied themselves into the Swiss market index or the Moldova Stock Exchange or whatever.

Mind you, as a not-so-wise man once said, if a structured product is right for you, then the important thing is to make sure the counter-party underpinning it is sound – and Citigroup and the rest seem pretty solid.

Julian Marr is editorial director of


Graphic content – December; the countries most exposed to a rise in protectionism

President-elect Trump has suggested withdrawing from the North American Free Trade Agreement (NAFTA) and ending negotiations over the Trans-Pacific Partnership (TPP), albeit there is considerable uncertainty over what he will, or even can, do. If one of the main consequences of the election of Donald Trump is US protectionism, it’s worth considering who stands to […]


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