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Meteor looks to Brazil and China

Meteor Asset Management has created a structured product that provides investment exposure to China and Brazil through an index and an exchange traded fund.

The emerging markets kick-out plan is linked to the Hang Seng China enterprise index and the iShares MSCI Brazil index fund over a five-year term. The plan has an early maturity feature that is potentially triggered by the performance of the index and ETF.

Investors will receive a return of 15 per cent of the original investment at the end of year one, provided both the index and ETF are at or above their initial values. If this does not happen, the plan continues until the following year. If, at the end of year two, the index and ETF are at or above their initial values, the plan will mature and investors will receive 30 per cent of their original capital. It will continue on this basis, paying 45 per cent if it matures in year three, 60 per cent in year four or 75 per cent in year five

However, if early maturity is not triggered and the final level of the index and/or ETF is lower that initial value, no growth is payable. Investors will receive a full capital return provided neither the index or ETF is more than 50 per cent below its initial value by the final day of the term.

Some IFAs who want targeted exposure to Brazil and China with a degree of capital protection may find this product useful. Other IFAs may prefer to diversify more broadly across 22 emerging markets through the Barclays Wealth emerging markets optimiser, but this product does not provide a direct comparison.

It is linked to the iShares MSCI emerging markets index fund for six years and does not have an early maturity feature. It is based on a strategy where exposure to the ETF is increased when volatility is lower than expected and reduced when volatility is higher than expected.

Barclays’ strategy may appear more complicated than Meteor’s early kick-out approach, but it has a higher level of capital protection than Meteor in that a full capital return is paid regardless of the underlying ETF’s performance.

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