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Morgan Stanley opts for deceleration

Morgan Stanley – FTSE Tracker Plus Plan

Type: Structured product/Isa

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

Return: 120% of the growth in the index capped at 84% of the original investment

Guarantee: Original capital returned in full at the end of the term provided the average monthly closing levels of the index in final year of the term is not below the initial value

Closing date: March 15, 2010, March 4, 2010 for isa transfers

Commission: Initial 3%

Tel: 020 7425 9000

Morgan Stanley’s FTSE Tracker Plus plan has a deceleration feature instead of a capital protection barrier. Investors will lose some of their original capital if the final index level is lower than the initial value, but it will only be a fifth of the negative index performance.

Fair Investment Company head of structured products research Julie Smith thinks the product sits well within the market. She says the plan’sclean, straightforward structure will make it easier for IFAs to identify suitable clients. “Due to its simplicity, IFAs will have a much easier task explaining to clients how the plan works, along with the potential risk and rewards.” she says.

 Smith says clients looking for enhanced growth potential and limited potential capital loss will find the product of particular interest.

 “The deceleration feature is unique and aims to reduce the impact of any falls in the market.  As loss of capital works on a 1:5 basis, even if the FTSE 100 was to fall to zero, the maximum loss of capital would be 20 per cent. “ She thinks this feature is an obvious advantage, which could diversify a client’s portfolio and reduce its overall volatility.

Smith regards the literature as clear, well laid out and easily accessible online for IFAs.  “Morgan Stanley’s website details valuations on a daily basis and offers liquidity every two weeks once the plan has started,” she says. Another advantage for Smith is the variety of ways in which clients can invest – direct investment, stocks and shares Isa or Isa transfers.

 Smith notes that returns from direct investment will be treated as capital gains rather than income for tax purposes. “Under present legislation, clients should be able to utilise any capital gains tax annual exemption allowance applicable in the year of maturity to reduce or eliminate completely the tax charge on any returns.”

 Turning to the potential drawbacks Smith says that CGT may rise at some point this year, so the tax implications of this could give rise to some uncertainty.
She thinks competition could come from tracker funds, exchange traded funds and other accelerated growth structured products such as the Barclays five-year super tracker, which provides three times the growth in the index capped at 75 per cent of the original capital, with a 50 per cent protection barrier. Investors will lose 1 per cent of their capital for every 1 per cent fall in the index if the barrier is breached.


Suitability to market: Good

Investment strategy: Good

Adviser remuneration: Good

Overall 8/10



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