The first issue of the Royal Skandia GBP Investec FTSE 100 Defensive Autocall Fund was unveiled in March 2014 and, like the recently unveiled second issue, is dependent on the FTSE 100 index rising to a specified level on a specified date.
If the FTSE 100 is higher than its starting level at the end of year two, the autocall will kick in, meaning the initial investment plus 14 per cent will be returned to the investor.
The return figure will then increase to 21 per cent at the end of year three, 28 per cent at the end of year four and 35 per cent if the FTSE 100 reaches a higher level during the product’s fifth year.
If the FTSE 100 is 85 per cent of its starting level when the product matures at the end of year six, the investment pays back the capital and a 42 per cent return.
A fall in the FTSE 100’s value to between 85 per cent and 50 per cent of its starting value after six years will return the capital with no interest, while if the index falls by more than 50 per cent the initial investment will be reduced by 1 per cent for every 1 per cent fall in the index.
Issue two closes for investment on 6 June 2014. The initial index level was set for 23 June and each autocall date will follow on its anniversary.
According to Skandia International, the investment is dependent on the solvency of Société Générale, Morgan Stanley, Banco Santander and Royal Bank of Scotland. Investors will lose 25 per cent for each one of these institutions that default.
Provider view: Mark Tully, head of structured solutions at Skandia International, said: “We are happy to be working with Investec on a second issue of the autocall linked fund. The demand for structured solutions, offering the potential for steady returns with an element of capital protection, is increasing as investor confidence in the UK economy grows. By making this fund available through our offshore bond wrapper, we are offering advisers and their clients greater flexibility in how they construct investment portfolios.”
Adviser view: Thomas Hughes, assistant managing director at Newcastle-upon-Tyne-based Lowes Financial Management, said: “While no one knows for sure where markets will move, the defensive feature of the product – that it could produce a 42 per cent gain after six years even if the FTSE 100 is up to 85 per cent of its starting level – is relatively appealing. Similarly, the mitigation of counterparty risk by utilising four financial institutions rather than a single institution could be of a comfort to investors concerned about the potential for default. However, the significant feature of this Skandia product is that it is intended to be invested in through an offshore bond, an option that has previously been essentially unavailable in the market. Consequently, while the terms of the product are very reasonable and it could be an ideal solution for those requiring an offshore bond, this requirement could be a disincentive for those who do not, especially considering the £25,000 minimum investment amount into the Skandia RS International Portfolio Bond.
Charges: Investors will be charged an establishment fee of 1.5 per cent by Royal Skandia, which is taken as a percentage of the investment fund.
Verdict: This investment offers some attractive returns in a period when confidence in the UK economy continues to surge. A lot, however, will depend on how the FTSE 100 performs on 23 June, which is the date from which all autocalls will be measured.
