Gilliat lock-in growth series issue 1 provides investor with a choice of three options that are linked to different asset classes through indices over a term of five years and two weeks.
Option one is linked to the performance of UK equities through the FTSE 100. It enables investors to lock in a defined return of 31.75 per cent growth if the index is at or above its initial level at the end of any year during the term. If these conditions are met and the growth is locked in at any point, investors will receive the growth along with a full capital return at maturity.
Option two is linked to the performance of commodities through the S&P GSCI – ER index. It has the potential to lock in 34.5 per cent growth on the same basis as option one. Option three is linked to the performance of the European property market through the FTSE Epra/Nareit Developed Europe index, with the option to lock in 32.3 per cent growth on the same basis as options one and two.
If the lock-in feature is not triggered because the chosen index is never at or above its initial value, no growth is paid. The original capital is then returned in full provided the index does not fall by more than 50 per cent during the term without returning to at least its initial value. If this safety net fails, the original capital is reduced by 1 per cent for each 1 per cent fall in the index.
According to the Structured Retail Products adviser website, this product is unique. Most structured products that measure the performance of an index at each anniversary have an early maturity feature that will kick out the investment with a defined return before the maturity date.
Instead of an early kick-out, investors in the Gilliat plan have more than one bite of the cherry in achieving a set return that is paid at maturity. If they are unable to lock in the growth in year one because the index has fallen, they have another chance to achieve it the following year, and so on until the end of the term.
As both the returns and the return of capital are dependent on index performance, there is a chance that investors could end up with nothing at maturity.
However, Gilliat has backtested the product and published the results in its product literature. This shows that for every five year period since the inception of each index, a full capital return would have been paid in over 98 per cent of cases for options one and two, and over 92 per cent of cases for option three.