Investments  

Kick-out offers investors a bet on falling markets

The FTSE/Dax Autoput Kickout will pay a 8.25 per cent coupon if both the FTSE and Dax are at or below their start level on the anniversary date.

This differs from the more conventional Autocall product when a coupon is paid if the markets rise, or do not fall by more than a certain amount.

Tony King, partner of Mariana Capital, said: “You will get the coupon if the market indices fall by 0.1 per cent or below their start level on the observation date. If both the FTSE and the Dax are at the same level, both at or below their start level on their observation date, you will get 8.25 per cent times the amount the plan has been running. So after three years you will get 24.75 per cent.

“A standard Autocall only pays out on the upside. An Autoput product pays out on the downside.”

Daniel Hawkins, managing partner of Mariana Capital, said: “There are so many factors like quantitative easing and tapering, so we’re putting a plan together that if markets are down you will get a cash payment of 8.25 per cent.”

Commerzbank is the counterparty for the product and provider of the options.

Mariana Capital has been running for about five years and is headed by former bankers, including some from Lehman Brothers.

It has issued six other products for the retail market, including those Autocall and income-generating offerings. The latest product is the first Autoput the company has released to the market.

The minimum investment is £5000 and the plan will run for six years. Capital is at risk if the closing price of either of the indices is above 150 per cent of its start level on the finish level date.

The product can be put into an Isa, Sipps and small self-administered schemes.

REACTIONS

Provider view

Mr Hawkins said: “One of the reasons we thought this was interesting is it’s a diversifier for your portfolio. When markets fall, that’s when you need some cash, you have some readily available cash. Having a product that returns cash to you when markets are in a recession might be an attractive part of the portfolio. I don’t think the markets will go down next year.”

Adviser view

Duncan Glassey, director of Edinburgh-based Wealthflow, said: “I don’t like these products. If a client has a portfolio that’s too high risk, they’re in the wrong portfolio. I don’t see by stuffing in these structured products is going to make an inappropriate portfolio good. If the portfolio is structured to a risk tolerance related to the client’s profile they should accept some volatility. I just keep thinking they’re salesmen’s tools. I don’t think it serves clients terribly well.”

Charges

The charges are 3 per cent but these are paid by Commerzbank to Mariana. No product charges are paid by the client.