Type: Capital-protected bond
Aim: Growth linked to the performance of the FTSE 100 index
Minimum-maximum investment: £1,500-£1m, Isa £10,680 or £11,280 for 2012/13 tax year
Term: Six years
Return: Investec option – 11% growth plus original capital at the end of year one provided the five-day average closing level of the index is above its initial value, 22% growth plus capital at the end of year two, 33% growth plus capital at the end of year three, 44% growth plus capital at the end of year four, 55% growth plus capital at the end of year five or 66% growth plus capital at the end of year six. UK 5 collateralised option – 9% growth plus original capital at the end of year one provided the five-day average closing level of the index is above its initial value, 18% growth plus capital at the end of year two, 27% growth plus capital at the end of year three, 36% growth plus capital at the end of year four, 45% growth plus capital at the end of year five or 54% growth plus capital at the end of year six
Protection: Original capital returned in full provided the five-day average closing level of the index at the end of the term does not fall by more than 50% of its initial value
Closing date: April 13, 2012, April 5, 2012 for Isa 2011/12 applications, March 30, 2012 for Isa transfers
Commission: Initial 3%, initial 2% plus 0.75% renewal or initial 1%
Tel: 0207 597 4065
This structured product is the first of its type to be added to the Investec Structured Product range. It is linked to the performance of the FTSE 100 index for six years and has two kick out options. Investec is the counterparty for the Investec option, which has the potential to kick out each year depending on index performance, paying 11 per cent growth for each year the plan remains invested. The UK 5 collateralised option provides slightly lower potential returns of 9 per cent a year for each year the plan remains invested, but it diversifies among five banks acting as counterparties.
Discussing the positive features of the plan, Baronworth Investment Services director Colin Jackson says: “This is the latest addition to the Investec stable of structured products. It enables IFAs to offer clients a potentially high return, subject to the kick out provision. There are two plan options, the Investec option or the UK 5 option. Insofaras the Investec option is concerned, the counterparty is Investec Bank. It deso not have a S&P rating but is rated by Fitch as BBB.”
Jackson notes that the potential return is 11 per cent a year for the Investec option for as long as the plan runs. “The other option is the UK 5 option where the counterparties are HSBC Bank, rated AA- by S&P, Nationwide Building Society rated A +, Santander UK rated A+ by S&P, the Royal Bank of Scotland rated A by S&P and Lloyds TSB Bank rated A by S&P. “ For those clients that are looking for the comfort of spreading the counterparty risk with counterparties with a higher rating than Investec then this would be the best option – although the return is ‘only’ 9 per cent a year, which is still attractive. Whichever option is selected, the clients return of capital is dependent upon the performance of the FTSE 100,” says Jackson.
He adds that if the plan does not kick out during its six-year term but goes to maturity, then capital is at risk at maturity if a 50 per cent barrier is breached at the closing level on the final day of the investment “The plan has a European barrier, as opposed to American barrier, which means that the level of the index is measured at the end of the term and not continuously throughout the product term. “In other words, it does not matter what happens to the performance of the index during the term .The investor’s capital is only at risk if the final index level, subject to averaging, is below the 50 per cent barrier. Any returns are liable to capital gains tax.
“Most people in the UK do not utilise their CGT exemption so, subject to the level of the investment/return all or part of the proceeds could be tax free. This also means that investors could use their Isa allowance for other investments,” says Jackson.
Discussing the product literature and adviser remuneration, Jackson says: “As is to be expected with Investec, the literature is well presented and easy to understand. The adviser remuneration of initial 3 per cent is in line with the market and there is also the facility to take a lower initial plus renewal.”
Turning to the potential drawbacks of the plan, Jackson says: “There is nothing I do not like about the product particularly as it gives investors the option to spread the counterparty risk if they decide to go for the UK 5 Option.” Jackson notes that there are other similar products on the market from other providers that offer similar features although, not necessarily, offering better potential returns. “Also, this is one of the few that offers a basket of counterparties,” he says.
Summing up, Jackson says: “This plan would suit investors who are looking for a potentially high return, are not looking for income, are prepared to take an element of risk with their initial investment and have not utilised their CGT exemption.”
Suitability to market – Good
Investment strategy – Good
Adviser remuneration – Good