Structured product provider Hilbert has launched its second structured product offering for UK advisers but experts have flagged drawbacks to the vehicle's structure.
The product is listed on the Irish Stock Exchange and invests in the FTSE 100 index – it aims to pay investors 1.75 per cent on a quarterly basis provided that the closing level of the FTSE 100 is at least equal to 80 per cent of its opening level on any quarterly measurement date.
The UK Conditional Quarterly Autocall Issue two can mature, that is, return cash to investors early, if the closing level of the FTSE 100 index becomes at least equal to 112 per cent of its opening level on any quarterly measurement date from 20 December 2018.
If this happens, investors can expect to receive the income payment for that quarter and the repayment of their original investment in full at this point.
Hilbert’s founder Steve Lamarque said "I'm really pleased to announce the launch of UK Conditional Quarterly Autocall Issue two, the second structured product in our income series.
"This product is well suited for those who are seeking regular income payments and given the success of our first issue I am confident that this product will be popular with our clients in the UK."
The launch comes in the context of data from Investec Specialist Bank, which showed a 40 per cent increase in sales of its structured products to financial advisers over the past year.
Ian Lowes, managing director at Lowes Financial Management, said: "Much as we have proven again and again that carefully selected, thoughtfully constructed structured products will do exactly what they say on the tin and have consistently performed, we don’t love all of them.
"The latest offer from Hilbert is one of over 50 income with auto call products launched this year, so it is fair to say that such contracts are proving popular outside of our client base but we have yet to endorse any.
"The offer from Hilbert seems like a reasonable proposition within the sub-set of income with auto call products, offering an attractive potential income of 7 per cent per annum.
"However, our issue is that the income is conditional upon the FTSE being above 80 per cent of the initial recorded level on each quarterly observation date."
Based on an initial FTSE level of 7,200, in the event of a correction putting the index below 5,920, Mr Lowes warned the income will cease until the index recovers.
He said: "People investing for income typically do so because they need that income and obviously, in such a downturn it wouldn’t be the best time to be selling other investments to make up for the shortfall."
Mr Lowes, who also runs Comparestructuredproducts.com, said the termination of the product if the FTSE is performing well is also a drawback with this launch.
He said: “A further issue with this type of contract is that once the index rises into territory that makes the income more certain, the contract terminates – in this case, on any quarterly observation date from the first anniversary onwards if the FTSE is 12 per cent or more higher.