The 5-year portable beta emerging markets edition December 2010 is available in two versions. The Investec version provides 110 per cent of any growth in the MSCI Emerging Markets index at the end of the term, while the Santander UK version provides 100 per cent of any growth in the index.
The MSCI index is reported in dollars while investments in to the plan are made in sterling, so any changes in the exchange rate during the term will be taken in to account when calculating the returns. This works by dividing the exchange rate at the start of the term by the exchange rate at the end of the term, then multiplying this by the growth in the index.
In a departure from other structured products, Investec has linked to the return of capital to a different index, the FTSE 100, because it is more established and less volatile than the MSCI Emerging Markets index. Investors will receive a full capital return at maturity provided the FTSE 100 does not fall by more than 50 per cent from its value at the start of the term by the final day of the term. If the FTSE 100 finishes more than 50 per cent lower, investors will lose 1 per cent of their original capital for every 1 per cent fall in the index.
Investec’s use of one index to provide growth and another index for the return of capital means that capital loss due to a fall in the FTSE 100 can be offset by the returns generated from the MSCI index. However, some investors may be put off by the impact that currency moves could have on the growth part of their final return.