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Product matters

What is the new investment black? Is there a new investment black? As sales of unit trusts are falling off a cliff, sales of structured products continue to climb. This is despite much negative publicity about many guaranteed high-income products launched several years ago. Growth products have been less affected and there are some interesting additions to the market at the moment.

Generally speaking, looking at products without 100 per cent capital guarantees takes on a higher degree of risk. However, there are investors who are happy to accept this. HSBC&#39s accelerated recovery plan provides geared upside to the FTSE 100 and some downside protection.

In effect, the FTSE can fall by up to 50 per cent and investors still get 100 per cent of their initial capital back. Frankly, if the FTSE falls by 50 per cent from today&#39s level, there will not be many financial firms left in the country.

This investment is a five-year term and will provide a maximum return of 175 per cent of the initial investment. Because this investment is geared using derivatives, the index only needs to rise by 25 per cent over the whole term in order to pay out the 75 per cent return – investors get three times the growth in the index between the start and finish dates.

Investors start losing out compared with, say, a tracker fund if the index rises by more than 75 per cent – which looks unlikely given the state of the markets at the current time. If you accept the risk that the FTSE will fall by over 50 per cent and not recover, then having a geared investment can add spice to investors&#39 portfolios.

Ben Yearsley is an investment manager at Hargreaves Lansdown.

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