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Product review: Morgan Stanley structured trio

New structured product releases target growth, track FTSE 100 index for six year term

By Geordie Clarke | Published May 03, 2012 | comments

Structured product provider Morgan Stanley has rolled out the latest generation of three of its FTSE 100-linked products, including the 48th version of the Protected Growth Plan.

First up is the FTSE Defensive Bonus Plan 2, running for a six-year term and offering a return of 9.5% pa payable from the second anniversary onward. It matures early if the FTSE 100 is at least 90% of its starting level on an anniversary date. If it matures in year two, it pays 19%, in year three it would pay 28.5% and so on.

Capital is protected at maturity if the index has not fallen by 50% or more.

FTSE Booster 5 also runs for six years and offers to pay two times the value of the FTSE 100 at maturity as a percentage of its initial level capped at 60% growth. If the index is at 75% of its initial level on the maturity date, the plan would receive a 150% total return; in other words, capital would be returned in full along with a 50% growth payment.

Even if the index falls by as much as 50% capital will be returned in full at maturity. Below that point, capital will be eroded. For example, if the index falls by 60% of its opening value, the return would be 80% of the initial investment.

The Morgan Stanley Protected Growth Plan 48 also runs for six years but offers an early-exit feature after three years that pays a fixed return of 35% if the index is 10% or more above its initial level.

If early maturity does not happen, the plan runs for the full term length and pays 100% of the performance of the FTSE 100 during the investment term with no upper limit. It comes with 100% capital protection as long as the counterparty remains solvent.

Minimum investment for each plan is £3,000. Securities are issued by Morgan Stanley.

MM View:

When something approaches a golden anniversary, it must be for good reasons. That Morgan Stanley is now on its 48th issue of the Protected Growth Plan must mean they are doing something right. If this product did not have suitable demand, it likely would have been dropped long ago.

In general, structured products are fairly straightforward. People either love them or loathe them. While these products have had bad press in recent years, the fact is that they spell out what they are going to do before any investment is made and then return capital and pay growth accordingly at the end of the investment term.

Where things can go wrong is when the index falls or the counterparty fails. These are events that are possible and have actually happened, albeit on rare occasions, so this is a risk that investors must be willing to take when choosing one of these products.

Even though we have written for a long time that structured products seem to have a tarnished image among financial planners, research conducted by Money Management among IFAs found that use of these investments is expected to grow during the coming year. Only a third of respondents said they do not use structured products at all, while nearly 80% said they felt knowledge of this product area has improved among IFAs in the past 12 months.

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