Premier say these holdings are part of its equity allocation, but behave more like zero-coupon bonds. They return only their face value, so are immune from daily stockmarket movements, but Premier benefits from a lower entry level on the secondary market compared with the original investors in these products.
Other structured product holdings in the multi-asset cautious growth fund have a high sensitivity to share prices, such as the HSBC 8% FTSE 100 defensive autocall. An autocall, often known as a kick-out, gives investors an opportunity to exit the investment early, with a fixed level of return plus their original capital if the underlying index reaches a certain level at a specified date.
The defensive autocall backed by HSBC returns 8 per cent for each year that the product remains invested and will kick out if the index is at or above its initial value in the first three years. From year four, the index can fall by 8.5 per cent a year. If the product runs until year six, investors will achieve the maximum return of 48 per cent growth plus their original capital even if the index has fallen by 25.5 per cent at that point.
Investment director, pooled funds, David Hambidge says: “ We are very happy for these to run longer than a year. If they do well in the cautious fund, we don’t care what the stockmarket has done during the term.”