Nearly nine in ten (89 per cent) of the structured products maturing in 2016 generated positive returns for investors, according to new data from Lowes Financial Management.
A further 8.9 per cent of these products returned capital only and 2.1 per cent (equating to nine products) returned a loss to investors’ original capital.
The average annualised return was 5.48 per cent, over an average term of 4.31 years, although this figure includes capital ‘protected’ and deposit based plans alongside capital-at-risk plans.
Lowes’ analysis found that capital-at-risk products collectively produced an average annualised return of 6.62 per cent over an average term of 3.82 years, while deposit-based or capital ‘protected’ products produced an average annualised return of 3.31 per cent over an average term of 5.24 years.
Those structured products linked with the FTSE 100 performed slightly better, with capital-at-risk products linked solely to the FTSE 100 collectively producing an average annualised return of 6.81 per cent over 4.06 years, and capital ‘protected’ and deposit based products linked solely to the FTSE 100 producing an average annualised return of 3.94 per cent over 5.21 years.
The best performing maturities were linked to the fortunes of just three shares; BP, BG and Shell.
Lowes Financial Management’s Structured Product Annual Performance Review for 2016 analysed 427 intermediary distributed products that matured in 2016. There were more than twenty counterparty banks behind these products, which Lowes claims is proof that diversification of structed products is possible.
“Since the early days of structured products when we publicly criticised certain plans and providers for poor value products, we have been championing good product development and governance and have seen the sector evolve well,” said Ian Lowes, managing director of Lowes Financial Management.
“Despite the weight of evidence there still seems to be a number of pundits who have not availed themselves of the facts and as such, still believe that structured products are generally poor or risky investments. This is certainly not the case.
"Whilst as with any investment sector, you can’t expect 100 per cent success, you wouldn’t expect to define a whole sector by its lowest common denominator.
“The 2016 maturity results include some exceptional results especially when considered in the context that most of these investments protected capital from all but the most extreme circumstances of, for example, a bank defaulting or the FTSE suffering a significant fall.”
For the purposes of the report, Lowes defined structured products as investments or deposits which are backed by a significant counterparty (or counterparties) where the returns are defined by reference to a defined underlying measurement (such as the FTSE 100 index) and delivered at a defined date (or dates).
