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Morgan Stanley features market timing

Morgan Stanley has introduced a structured product that has a market timing feature to select the best entry point into the FTSE 100 index at the start of its five-year term.

The FTSE gilt-backed best entry growth provides five times the growth in the FTSE 100 index, capped at 45 per cent. This means investors will not benefit from any index growth above 9 per cent.

The market timing feature is unusual in that the performance of the index is not necessarily calculated from the start date of the plan. Instead, index levels are recorded on August 10, September 10, October 10 and November 10 and the lowest recorded level is used as the starting point for performance. Morgan Stanley says this feature gives investors the benefit of hindsight during volatile markets as the lower the entry point, the bigger the scope for potential growth if the index rises.

Investors in this plan will also get a full capital return at maturity, provided the index does not fall by 50 per cent or more from its initial value by the final day of the term. If this barrier is breached, investors will lose 1 per cent of their original capital for each fall in the index. If the index falls, but by less than 50 per cent, investors will receive only their original capital.

Morgan Stanley has also tried to minimise the credit risk of investing in structured products by investing in preference shares. The issuer of those shares will buy UK Government bonds to secure the returns and enter into a derivate contract with Morgan Stanley. Morgan Stanley will post cash, or other liquid assets, as collateral to the full value of the derivative contract into a segregated account on a daily basis. This collateral can only be used to provide the returns for this plan .

The optimized growth plan from Jubilee Financial Products is a five-year FTSE 100 linked plan with a similar market timing feature and similar cpaital protection. The initial index level is measured as the lowest daily closing level of the index during the first three months of the term. Investors receve three times the growth, which is lower than the Morgan Stanley plan, but the returns from the Jubilee plan are capped at a higher rate of 50 per cent. in the index capped at 50 per cent.


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