SPR set for win over IMA in structured product challenge

Structured product research firm StructuredProductReview looks to be edging towards a victory over the Investment Management Association in the competition between a unit trust tracker and a mini-portfolio of structured products.

In April 2011 SPR offered a ‘friendly’ seven-year challenge to the IMA to compare the performance of a major unit trust tracker with a mini-portfolio of structured products representing a similar holding in the market.

The challenge came after the IMA had published a paper that sought to compare a tracker fund with structured products, using NS&I Guaranteed Equity Bonds as their example of structured products.

SPR claimed GEBs could not be seen as a representative of the structured products market, which encompassed a far wider universe of investment structures. The IMA remained unconvinced, so SPR and the IMA agreed to the challenge.

With the exception of one product, the structured products are outperforming the tracker both individually and as a portfoliohalf way through the contest. The performance of the tracker alongside that of the selected structured products is listed below.

The challenge finishes in December 2017.

Performance of tracker and structured products in percentage value terms at 15 July:

structured products

Source: Provider websites and FE Analytics

Having kicked out on 14 July 2014 returning a 50 per cent gain on that portion of the portfolio, the Morgan Stanley FTSE Kick Out Growth Plan proceeds will now be invested in the tracker, without any initial charge, which locks in its value against that investment. 

StructuredProductReview says that for the tracker to outperform the structured products in a rising market, the rate of growth in the FTSE 100 (assuming that the tracker keeps its position at index performance plus 3 per cent) would have to be 8.75 per cent per year for the remaining 3.5 years of the term. This would take the FTSE 100 to a level in excess of 9,000 points.