InvestmentsFeb 27 2013

Meteor launchadds issues to FTSE 5 range

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The returns of both products are linked to a basket of five leading FTSE 100 shares.

Both products have a six year, two week term, and are based on the performance of shares from Rio Tinto, Marks & Spencer, Lloyds, International Consolidated Airlines Group, and United Utilities.

For the FTSE 5 enhanced quarterly defensive March 2013 product, if on any measurement date the close of business level of each share is at or above 85 per cent of its opening level, the product will mature early and make a growth payment of 4 per cent of the money invested for each quarterly period that the product has been in force. Otherwise, no payment will be paid and the product continues.

If the product runs for the full investment term, it will provide a growth payment of 96 per cent as long as the final level of the lowest performing share is at or above 50 per cent of its opening level.

The FTSE 5 quarterly income March 2013, has a fixed income of 2.1 per cent gross per quarter payable throughout the term and is not dependent on the performance of the shares, but is subject to counterparty risk. It has a capital protection barrier of 50 per cent of opening level on lowest performing share and final level observation only.

Both products have Isa transfer applications by 8 March, applications with cheques by 15 March and applications with bank transfers by 20 March 2013. A start date of 22 March 2013, and opening levels at close of business level of the shares on 22 March 2013. Final levels at close of business levels on the five shares on 22 March 2019 and a maturity date of 5 April 2019.

The enhanced quarterly defensive has measurement dates of 24 March, 23 June, 22 September, 22 December 2014 and quarterly thereafter. The FTSE 5 quarterly income has income payment dates of within 10 business days of 5 July 2013, 7 October 2013, 6 January 2014, 7 April 2014 and quarterly thereafter.

REACTIONS

PROVIDER VIEW

Graham Devile, managing director at Meteor Asset Management, said: “For investors seeking equity exposure, the FTSE 5 enhanced quarterly defensive March 2013 could provide an alternative to holding shares directly. The 50 per cent capital protection barrier allows significant movement in the share prices before investors are at risk of capital loss, and in the event that the product runs for the full term the product will provide a growth payment of 96 per cent as long as the worst performing share is at 50 per cent of its opening level.”

ADVISER VIEW

Chris Daems, director of London-based Principal Financial Solutions, said: “While both funds are based on the performance of five blue-chip companies in a range of companies I feel that this does not sufficiently diversify a client investment. While you can of course use other product types within a portfolio to provide greater diversification an investment into this product will increase exposure, and potentially provide a detrimental bias towards the five companies it is dependent on.”

CHARGES

The charges on the products depend on the route taken to purchase them. If using an Omnium account: direct, Isa and Sipp applications on paper have a 0.75 per cent charge; direct, Isa and Sipp applications online have a 0.50 per cent charge; and platforms, wraps and DFMs have a 0.35 per cent charge. Various platforms are able to purchase the securities direct from the counterparties and in this instance, no Omnium fee is applicable. Meteor is paid a distribution fee by the counterparty which is up to 3 per cent, but usually between 2 per cent and 3 per cent. This fee is for marketing a product and is always disclosed on the product factsheet for each security or deposit and does not impact potential returns.

VERDICT

Graham Devile highlights that the FTSE 5 quarterly incomes enhanced return comes with extra risk, so would perhaps not be a good choice for the cautious investor.

OVERMATTER FROM ifa QUOTE IF NEEDED

On the FTSE 5 quarterly income fund the fixed income of 2.1 per cent per quarter not dependent on the performance looks superficially attractive, this needs to be balanced with the high risk of capital loss together with the counterparty risks associated with this type of structured product.”