The product looks at the performance of the shares of the 20 companies over the life of the plan and on maturity gives investors a return equal to the average performance of the 11 best-performing shares.
The repayment of capital is linked to the whole FTSE 100, and capital is repaid in full, as long as the index does not close at or below 50 per cent of the initial level on the date the plan matures. If it does, the repayment of capital reflects the negative performance of the index over the six-year term.
Morgan Stanley gave an example of how the same product run between April 2001 and April 2007 would have generated an average total return of 227.34 per cent, equivalent to 14.67 per cent AER, whereas a FTSE 100 Total Return Index produced a performance of 141.71 per cent, or 5.99 per cent AER, over the same period.
The plan is now open and closes on 3 June 2013. The deadline for Isa transfers is 24 May. The product is subject to counterparty risk of Morgan Stanley, which means all capital protection is subject to the solvency of the bank.
The product can be put into a stocks and shares Isa, Sipp and Ssas. Those not in a wrapper will be subject to capital gains tax. The minimum investment is £3000.
Provider says:
Marc Chamberlain, executive director of Morgan Stanley, said: “We’ve included a feature that gives investors the benefit of hindsight – this gives investors more opportunity to generate real alpha and outperform the market. At the same time, we’ve been careful to link the capital repayment to the index rather than the performance of single stocks to make sure investors aren’t taking on unnecessary downside risk. Although past performance is no indication of future performance and should not be relied upon to make investment decisions, we hope advisers agree that the combination of UK large cap equities and the best-11 feature create a compelling story.”
Charges
4 per cent of capital, but this is incorporated into the product.
Adviser view:
Ian Lowes, managing director of Newcastle-Upon-Tyne-based Lowes Financial Management, said: “The investment will give rise to a loss if Morgan Stanley goes bust and if the FTSE 100 index falls by more than 50 per cent, so you have to accept that risk. I think the potential of those events happening is reasonably low, but not impossible and that’s why you’re getting the reward for accepting the risk.
“This product is taking 20 stocks that represent 50 per cent of the FTSE 100, and then you get rid of nine stocks as if you never invested in them. I like the concept and would consider taking them into my portfolio.
“If these shares were bought within a portfolio and held over the next six years, an investor would, of course, receive dividends paid by those companies and this could represent a reasonable return over the term. However, I believe that the effective allocating of the investment portfolio with the benefit of hindsight meaning that the performance is linked to the capital value of the best 11 of the 20 is adequate compensation.”
Verdict
Morgan Stanley has come out with an interesting product, but it carries clear risks. This may be more suitable to a sophisticated investor, who is more familiar with stock-market investing already.
