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Defaqto on Morgan Stanley’s FTSE Gilt-Backed Growth Plan 9

View of Defaqto insight analyst for funds Fraser Donaldson

Donaldson says: “Like many structured products, this one does what it says on the tin with the added advantage of protection from counterparty risk through a government securities vehicle.

“Depending on whether or not the kick-out feature is activated the term could be anything from two to six years. If the FTSE 100 is the same as or higher than it was at the strike date on the second anniversary the kick-out is activated and 14 per cent is paid. If it is not, the level of the FTSE is measured on subsequent anniversaries and if on any one of these the level is the same as or greater than the starting level, 7 per cent is paid for each year of the term.

“If the FTSE 100 does not reach the starting level on any of the anniversaries, the capital is returned unless the index drops below 50 per cent of its starting level at any point in the term. In this case the capital return is reduced by the same percentage as the fall in the index.

“Investors that are nervous about the markets and are not confident about real returns may find this investment worthy of consideration. Capital return is not guaranteed but there is a significant amount of downside protection and 7 per cent a year is certainly better than can be achieved through deposit accounts.

“Being a kick-out plan the point of achieving maximum potential return is uncertain, which may make some aspects of financial planning difficult. It is worth pointing out for those advisers who like to like to asset allocate, that although this plan is linked to the FTSE 100, the returns will almost certainly not reflect the actual movement in the index.

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