Investments  

Dual index launch offers ‘double digit potential’

Daniel Liberto

The Morgan Stanley Dual Index Defensive Kick Out Plan has a six-year lifespan at which point capital will be repaid in full should both indices be at or above 60 per cent of their starting levels.

If this objective fails, the repayment of capital will be reduced in line with the negative performance of the worst performing index.

From the second year, the plan offers investors a potential annual return of 10.1 per cent if both indices are at or above a certain level on the kick-out date.

The product has a decreasing kick-out barrier that both indices need to be at or above on its annual date, which decreases by 5 per cent a year during the investment term.

For example, for the product to mature on the first kick-out date in year two, both indices must be at or above 100 per cent of their starting levels, whereas in the third year they have to be at or above 95 per cent of their initial levels.

Aside from the dual-index plan, Morgan Stanley also offers a FTSE 100-only version called the FTSE Defensive Kick Out Plan, which was designed to offer investors an annual return equal to 8 per cent should the index close at or above 95 per cent of its starting level.

The financial services firm has also relaunched its six-year FTSE Defensive Supertracker Plan 2.

All of these products are open for investment until 9 May, with the lifespan commencing 27 May.

Provider view: Nev Godley, vice president at Morgan Stanley, said: “Dual index products can be a useful addition to the portfolio of investors willing to take on a bit of additional risk in exchange for potentially higher returns. Here, we have tried to offset some of that risk by introducing a decreasing kick-out barrier during the term while still offering the potential for double-digit returns.”

Adviser view: Claire Walsh, IFA for East Sussex-based Pavilion Financial Planning, said: “Structured products are really complicated and difficult to explain to clients, particularly when they are linked to two indices like this one. It sounds like a good idea, but there is so much complexity to articulate. I consider structured products for cautious investors, whereas the more experienced investor, who would better understand it, often requires something a little more aggressive. Structured products have a hard time. I understand it, but explaining it to clients is a problem.”

Charges: The product fee is up to 3 per cent over the entire investment term.

Verdict: Meteor Asset Management recently launched a similar looking product, although the addition of a decreasing kick-out barrier is an interesting inclusion to Morgan Stanley’s own offering. This dual index vehicle offers attractive returns based on the performance of two renowned indices that have both gone from strength to strength as the European economy enters recovery mode, although whether they can reach the heights required for early maturity remains to be seen. A lot will depend on your faith in UK and continental blue chips weathering any future storms in the years to come.