I sometimes wonder whether I’m the only journalist left on planet earth who’s remotely interested in structured products.
Whenever I talk to my colleagues about structured products they usually trot out some of the old truths about the sector but then freely admit that they haven’t looked at the sector in years. My own take is that after a dreadful few decades where all sorts of junk were peddled to unsuspecting investors, many times via high street institutions, the sector has finally cleaned itself up.
The FCA rightly bludgeoned many plan providers into submission and the sector has largely retreated to IFAs and wealth advisers where it always belonged. The quality of the products has also massively improved although my suspicion is that the pool of IFAs who use them hasn’t probably grown much over the ensuing years. I’m also the first to concede that not all plan providers are created equally and that some are better than others (a constant theme in all financial services).
But the message now has to be that for many defensive investors, it’s worth looking again at structured products – especially if you are invested in rubbish absolute returns funds.
The numbers for returns on structured products also tell us an interesting story.
In this area, one has to give credit to Ian Lowes, up in the North East who has persevered with structured products through thick and thin. He keeps crunching the numbers and only a few days ago brought out his latest round up on SP returns – it’s called the Lowes Financial Management Structured Products Annual Performance Review and it reveals “yet another great year for the sector” according to Ian.
You can obtain a copy of the review at Lowes.co.uk/SPreview.
Here are the top-line numbers:
• 334 plans matured in 2019 of which 80 were structured deposits.
• Capital-at-risk maturities returned an average of 6.74% per annum whilst deposit-based
maturities returned 3.01% per annum.
• More than half of all maturities (179) were auto-calls / kick-outs.
• 66% of all maturities were linked to the FTSE 100 Index Only.
• 7.41% annualized returns for the most prevalent product shape – capital-at-risk, FTSE 100
• 94.31% of maturing products produced positive results for investors. Only 4 maturities
gave rise to a loss.
• The upper quartile / best 25% of capital-at-risk plans delivered an annualized average
return of 9.38% with the lower quartile still returning 3.81% per annum.