Structured Products

[F458]

Any one done any?

[ellroy]

What would you like to know?

[curley]

I have used these over the years .generally a FTSE tracker type one . i.e pays out if the FTSE is at or above the starting level at the maturity date .

I look for the ones that have an annual kick out so that its not all or nothing at the end of a term .eg a 5 year plan that kicks out at years 2,3,4,or 5 if the FTSE is above the starting level at any of the 4 kick out dates .

I avoid the products that penalise you if the FTSE falls below a certain level ( say 50% of the start point ) even if it meets the trigger level at a later kick out date .

I get my IFA to rebate 50% of his commission to enhance the deal .

I have just put £100K in a Barclays 90% product that will pay 17% return after 2 years ( plus commission rebate ) if the FTSE is above 90% of its current level .Capital gain so no income tax payable .if it runs to year 3 the return is 25.5% , year 4 ,34% , if it hasn't paid out by then i start panicking as i only have one more chance for it to mature without potential penalty .

These aren't for everyone and i would limit your exposure to money that you can afford to loose but they have been good for me over the years .Pundits will say put your money directly into the market .I do that as well , just use these as part of a mixed portfolio .

Pick a company that is a good covenant , you wouldn't have wanted one underwritten by Northern rock !



Awaits comments about the covenant of Barclays ........

[tom77]

I have one too....an Investec 5 year kick out plan, tracking the FTSE 100

This has both the attributes mentioned inclusion erosion on principal amount if FTSE falls below 50% of the target value.

If I hit the target of 5896 in year one, I get 10.75% and the product 'kicks me out', then an increasing amount of up to 120% if it goes to year 5.

So, June this year is the first anniversary, do we think FTSE will hit 5896?

[F458]

Thanks for the replies, they do sound good initially because of the guarantees put in them, whether that be zero loss or only losses if the index falls below 50% of starting figure. However you don't get any dividends which could easily account for 4 or 5% a year at the moment even if the share price goes no where! Over 5 years that could be a 25% return anyway! And IFA's getting 5% initial commission mean there must be a fair chunk of charges built in some visible some not I guess. I would be interested in a Bearish structured product though, so benfit if the index/s go down rather than up and no loss if the market is say 50% above its current value. I think that would be a good hedging tool and addition to a portfolio. I can't seem to find any though so am looking at getting a bespoke one put together maybe.

[ellroy]

Bespoke structures you are looking at £3m+ to get one sorted out, depending on index and pricing.

If you are looking to hedge dowside risk why not look at options?

[DonkeyApple]

F458 said:

Thanks for the replies, they do sound good initially because of the guarantees put in them, whether that be zero loss or only losses if the index falls below 50% of starting figure. However you don't get any dividends which could easily account for 4 or 5% a year at the moment even if the share price goes no where! Over 5 years that could be a 25% return anyway! And IFA's getting 5% initial commission mean there must be a fair chunk of charges built in some visible some not I guess. I would be interested in a Bearish structured product though, so benfit if the index/s go down rather than up and no loss if the market is say 50% above its current value. I think that would be a good hedging tool and addition to a portfolio. I can't seem to find any though so am looking at getting a bespoke one put together maybe.

Find a broker with access to Scoach.

Someone like Nomura etc.

By the time SPs are subdivided to palatable unit sizes for the retail market, had costs of glossy brochures included, fractured in extra comm for the secondary dealing desk, in some case tertiary as well, cost of selling to the IfA, their comm and a myriad other retail costs it's hard to find products with an equitable risk/reward and a lean fee structure.

If you are able to deal in the original unit sizes then personally I wouldn't add a bucket load of fees and commissions to boot.