The autocall investment, which has been rolled out over a six-year term, offers investors an index-tracking product with the potential of “an attractive coupon uplift”.
If, during the yearly measurement dates, the closing levels of both indices are equal to their opening levels, the product will mature early and pay out an investment return of 10 per cent for each annual period the product has been in force. Alternatively, if the product runs for the full six-year investment term, it will provide a return of 60 per cent, provided the final level of the lowest performing index is at least equal to its opening level.
The counterparty for the investment product, which includes a capital protection barrier of 60 per cent of the opening level on the lowest performing index, is the Royal Bank of Canada, which currently has a credit rating of AA-.
The start date for the product is 11 April 2014, with the opening levels being calculated at the closing levels of the two indices at the end of that day.
Measurement dates will then take place every year on 13 April 2015 and 11 April in 2016, 2017, 2018, and 2019, while the final levels will be calculated as the closing level of the two indices on 13 April 2020.
Meteor confirmed that the maturity date for the autocall structured product will be 27 April 2020.
The product has been made available either as a direct investment, by a pension fund, as a stocks and shares Isa transfer, or for corporate investors and trustees.
Graham Devile, managing director at Meteor Asset Management, said: “Developed for investors who prefer products that track indices, but are willing to take slightly more risk, the FTSE/STOXX Kick Out Plan April 2014 offers an attractive coupon uplift in comparison with similar shapes that are only exposed to a single index.”
David Penny (right), managing director of Somerset-based Invest Southwest, said: “As a general rule, structured products are sold where an adviser lacks the ability to describe neutrally the relationship between risk and reward, and where the client is unable to accurately comprehend risk. They are presented as a low-risk way into the better returns of fluctuating assets, but in fact they withhold dividend income – around 50 per cent of returns – are expensive, inflexible and often create an unnecessary tax bill.”
There are no annual management charges or fees at the time of maturity. However, paper applications and ongoing paper correspondence is charged at
0.25 per cent, and the encashment of a plan carries a £150 fee.
Many advisers remain averse to kick-out autocall plans’ apparent complexity and illiquid nature. But they do offer benefits for investors seeking more than just a tracker fund and who are confident about the futures of these two large-cap indices. The FTSE 100 recently climbed to a 14-year high, while the Euro Stoxx 50 index has struggled to regain the ground it lost during the financial crisis. Both would be expected to go from strength to strength as the economic recovery in Europe gains momentum, but plenty of things can happen to financial markets before the 2020 maturity date.