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Merchant provides hard act to follow

Merchant Capital – Growth Plan: Twin Win

Type: Capital-protected bond

Aim: Growth linked to the performance of the FTSE 100 index

Minimum-maximum investment: £3,000-no maximum, Isa £7,200, £10,200 for the over 50s

Term: Six years and three weeks

Return: 200% of the growth in the index capped at 94% of the original capital or 100% of any fall in the index up to 40%

Guarantee: Original capital returned in full at the end of the term provided the index does not fall by more than 40% without returning to at least its initial value

Closing date: March 12, 2010, March 5, 2010 for Isa transfers

Commission: Initial 3%

Tel: 020 7332 2200

Merchant Capital’s growth plan: twin win is a structured product that is able to produce a return if the UK stockmarket rises or falls.

The plan is linked to the FTSE 100 index for six years and three weeks. Investors will receive double the growth in the index, capped at 94 per cent of the original capital, if the index rises. This means they will get the maximum return if the index rises by 47 per cent but any growth above this percentage will not be passed on. Alternatively, investors will receive 100 per cent of any fall in the index up to 40 per cent. There will also be a full capital return provided the index does not fall by more than 40 per cent without returning to at least its initial value by the end of the term.

Putting the product in to its market context, Baronworth Investment Services director Colin Jackson says: “It has been a long time since I have seen a structured product that pays out irrespective of whether the Index rises or falls, and even then they were few and far between.”

He says the Merchant plan is unique. “Provided it is held for the full term, it offers attractive returns, namely, a participation rate of two times the rise in the FTSE 100 Index subject to a cap of 94 per cent gross  or one times the fall if the Index decreases subject to a barrier of 60 per cent.”

Jackson points out that the return of capital is not guaranteed.  “Capital is at risk if the 60 per cent barrier is breached and fails to recover to at least its initial amount at maturity. If the barrier is breached then investors cease to participate in the downside return feature,” he says.

The supporting literature is viewed by Jackson as attractively produced and very easy to understand.  Highlighting the product’s useful features he says: “There is the facility to invest within an Isa wrapper for Isa transfers and direct investments.  In the event of a direct investment any returns are subject to capital gains tax – another major advantage on the basis that most people do not utilise in full their capital gains tax exemption.

“This means that, in suitable cases, investors can make a direct investment, receive the returns tax free and save their Isa allowance for something else.  As mentioned earlier, the returns are also attractive.”

Jackson discusses the counterparty to the plan.“ The counterparty is Morgan Stanley, which has a credit rating of A from S & P, although the credit rating is not the only consideration.  Adviser remuneration of 3 per cent initial is in line with the market, but there is no trail commission,” he says.

He adds that he cannot find anything to dislike about the product and reiterates that there is no comparable product on the market that is likely to provide competition.

Summing up, Jackson says: “This is Merchant Capital’s debut into the structured products market.  In my opinion, the company has got it right. This product will be a hard act to follow.


Suitability to market: Good

Investment strategy: Good

Adviser remuneration: Average    

Overall 9/10



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