The product is linked to the performance of the FTSE100 for six years and three weeks. If the index has grown over the term, investors will get a return of 1.4 times the growth in the index plus their original capital. If the index falls and has never been more than 50 per cent below its start value, investors will receive a return equivalent to 1.4 times the fall in the index plus their original capital.
If the index has fallen by more than 50 per cent and its end value is lower than the start value, no growth will be paid and investor’s capital is at risk because the capital protection barrier will have been breached. Where a breach occurs, investors will lose 1 per cent of their capital for every 1 per cent fall in the index.
During backtesting of the product for each six-year cycle since the inception of the FTSE 100 index on January 3, 1984 until January 4, 2011, Gilliat found that a full capital return would have been paid almost 99 per cent of the time. The most likely outcome was growth of between 100 and 200 per cent, which occurred on more than 35 per cent of six-year cycles.
Backtesting does not indicate how this product will perform at maturity, so there is a risk of capital loss. But some investors may see this as a risk worth taking because of the potential growth payments in rising and falling markets.