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Defaqto on Morgan Stanley’s FTSE Booster Plan

View of Defaqto insight analyst for funds Fraser Donaldson

Donaldson says: “This product is aimed at investors who are looking for growth in this current unstable and uncertain market. The plan will provide a fixed growth return of 60 per cent as long as the FTSE 100 has risen, remains unchanged, or has fallen by 20 per cent or less over the six-year investment term.

“If the index falls, by more than 20 per cent over the investment term based on the final index level as a percentage of the initial index level, then the unique ‘booster’ feature will kick in. This feature will allow investors to receive a positive return even if the index falls up to 80 per cent. Therefore, if the FTSE 100 index is at 75 per cent of its initial index level at maturity, the plan will repay 150 per cent of the investment. In other words two times 75 per cent of the initial investment.

“The only other risk associated with this product is the counterparty. If the counterparty becomes insolvent before the end of the term the original investment will be lost. In this instance the counterparty is Morgan Stanley. It should not be forgotten that there is no guaranteed minimum return with this plan and despite the fact that the plan offers more protection than most, the investors initial capital is still at risk should the FTSE Index perform extremely badly.

“Conversely, it is also worth noting that the fixed growth rate is capped at 60 per cent. Therefore, if the FTSE 100 index performs strongly, the return received would be less than that of an investment linked directly to the positive performance of the index.   

“In these times of volatile markets and very low returns on cash, this opportunity may be appealing to growth investors who feel that the UK market is still an attractive proposition bearing in mind the current turmoil in the Eurozone.  But one thing to note is that although returns are linked to the FTSE 100 index, it should not be considered a UK investment from a portfolio construction point of view, bearing in mind the internationalisation of the index.”


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