This passive investment gave me a 76% return in 5 years
Ian Lowes, managing director of Lowes Financial Management and founder of StructuredProductReview.com, highlights why he uses structured products in his personal portfolio
As a financial adviser who puts client money where he would put his own, I invest in a fair number of structured products myself. Like the bulk of the sector, few of these disappoint but we’ve developed a reputation for identifying best of breed.
I invest small amounts, as part of a diversified portfolio and have just had my sixth maturity this year: the Investec FTSE 100 Accelerated Growth Plan 35.
Unlike the majority of structured investments, this plan did not contain any barrier or, downside protection to the extent that if the FTSE fell over the five-year term I would have suffered a capital loss in line with that fall. The compensation however was that if the FTSE rose I would be rewarded with a gain equivalent to 2.7 times the rise.
The final index measurement was to be the average of the closing levels over the final six months of the term which, admittedly could inhibit growth but could equally mitigate the impact of the index declining at the end of the term.
At the time, the FTSE 100 index was hovering around the 5800 mark and as I was prepared to invest in the stockmarket then, this investment, as part of a diversified portfolio, was somewhat of a no-brainer to me. The plan ultimately ‘struck’ at a FTSE position of 5758.40.
When the plan matured on the 8 September this year the index stood at 7377 but the effect of the final six months averaging was a slightly higher final index measurement of 7390.12, being a rise of 28.34% resulting in a gain to me of 76.51% – an annualised return of over 12% per annum.
Whilst I have to accept that an actively managed fund could have outperformed this plan, it was a completely passive investment and yet significantly outperformed FTSE tackers.
By way of an example the HSBC FTSE 100 Tacker delivered returns of 29.57% on a price only basis (excluding dividends) and 52.81% on a total return basis (including dividends).
So this has been yet another success story but interestingly, not the best maturity in my structured product portfolio to date. That said, the best was admittedly, a high risk structure of a type [as a firm] we rarely prefer. The others have, as structured products do, performed exactly in line with their defined returns and as such, produced average returns of over 9% per annum.
The potential returns from plans currently on offer are lower than those that have matured this year but these returns are relative and there are still many plans on offer that I believe offer appropriate, potential returns for the risks being taken.
Unlike the maturing Investec plan, all of those currently available offer a reasonable degree of protection against the stockmarket under-performing, typically insulating capital from loss in the event of the market falling by up to 40% over six years.
Whilst it should not be considered an indication of suitability, or a recommendation to invest we still make public our ‘Preferred’ products, being those that I and the Independent Financial Advisers that represent Lowes Financial Management will utilise in our day-to-day role of advising clients.
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