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Income every six months from Blue Sky

Blue Sky Asset Management has brought out a structured product that provides income of 4.5 per cent every six months during a five year term, depending on the performance of the FSTE 100 index.

The high income corridor auto-call plan depends on the index remaining in a range, or corridor, of 85 to 105 per cent of its starting level at each six month point during the term.

Investors will receive income payments provided the index is at or above 85 per cent of its initial value at each six month point but not more than 105 per cent. This means the index can fall by up to 15 per cent without impacting on income payments. However, if the index has risen to 105 per cent or more above its initial value, the product will terminate and return the original capital in full.

Blue Sky says the termination of the product in these circumstances allows investors to reposition their portfolios in the light of a potentially different stockmarket environment.

If the index does not terminate early, investors will get a full capital return at maturity unless the index falls by more than 50 per cent below its initial value by the final day of the term. If it breaches this barrier, investors will lose 1 per cent of their capital for every 1 per cent fall in the index.

According to the Structured Retail Products adviser website, this product is unique in providing income every six months potentially for five years, with an early maturity feature and a degree of capital protection at maturity.

Five-year FTSE 100 linked plans are available from Keydata, Arc Capital & Income, and Barclays Wealth but none has an early maturity feature. The returns of these plans are lower at 7.8, 7.95 and 7.75 per cent a year respectively, but will paid for a potentially longer period than the Blue Sky product, as this may terminate early.

Some investors may choose the Blue Sky product because it provides high income when the outlook for the UK stockmarket is uncertain and interest rates are low. However, other investors may not like the uncertainty of how long they will receive income from the plan and may prefer lower returns over a fixed period.


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