This product was designed to provide investors with a return above their original capital in both rising and falling markets. It is linked to the FTSE 100 index for a term of six years,. If the index rises over the term, investors will receive 100 per cent of this growth. On the other hand, if the index falls, investors will receive a return equivalent to this fall, capped at 50 per cent.
Investors will receive only their original capital back in two circumstances – if the final index level is the same as the starting level, or if the index falls by more than 50 per cent but does not recover to at least its starting level by the end of the term.
The bull and bear concept could be regarded as the equivalent of an each way bet and may have appeal for cautious investors who are not sure about the direction of the stockmarket over the next six years. The Arc product may also attract interest due to its full capital protection.
According to the Structured Retail Products adviser website, this product is unique. Birmingham Midshires and Bank of Scotland International both offer FTSE 100 linked bull and bear products, but these are five-year products. Both provide a full capital return plus the greater of 80 per cent of the rise or fall of the index, or 10 per cent of the original investment.
Some investors may feel the Arc product’s six-year term is too long, so may be more comfortable with the five-year alternatives. These products also have the added security of a minimum return of 10 per cent above the original capital.
However, the participation rate of the Arc product is higher at 100 per cent, but in practice this will be limited to a maximum of 50 per cent if the index falls.