Market volatility delays structured product maturities


Structured products have, in the main, delivered consistent returns over recent years and while, as with other investments, performance was inevitably impacted by the financial crisis, many structured products benefited from their capital preservation features.

In March last year, the FTSE 100 surpassed the elusive 7,000 mark and now is trading over 10 per cent lower. The UK index had a rocky ride over the first quarter of 2016, where a low of 5,537 was seen, and the index ended the quarter around where it started. Figures collated by reveal that over this period, 60 of the maturing FTSE 100 only adviser-distributed structured products made a gain for investors, while only two returned just original capital and none made a loss.

Around two-thirds of products are linked just to the FTSE 100. The 62 FTSE 100 linked maturities made average annualised gains of 4.92 per cent over an average term of five years. The top 25 per cent delivered an average return per annum of 7.58 per cent over an average term of 4.97 years, while the bottom 25 per cent made 1.9 per cent over 4.94 years. Such returns should be put into the context of the FTSE 100 not showing much growth over the past five years to the end of the quarter.

Looking at the 20 products linked to measurements outside this index, eight delivered a gain for investors, eight returned capital only and four made a loss for investors. In the past, in many instances, the risks of investing outside the FTSE 100 has paid off, but for others it has not.

Three of the loss-making products were impacted by the bear market in commodities and the remaining one by emerging market weakness. The overall performance of maturities in the first quarter have been dragged down by the two worst performers; one returned just 23.8 per cent of capital, impacted by dramatic falls in an oil index, and the other linked to emerging markets only returned 33 per cent of original investment capital.


The average annualised returns of all the 82 products maturing in the first quarter collectively was 3.67 per cent over an average term of five years. The top 25 per cent made average annualised gains of 7.49 per cent over an average term of 4.66 years, while the bottom 25 per cent made an average loss per annum of 1.92 per cent over an average term of 4.93 years.

The less than favourable market conditions in the first quarter, where the FTSE 100 Index was lower than it was in the first quarters of the preceding two years meant that many auto-calls with a maturity opportunity in the quarter did not reach this outcome. As such, maturity was deferred until subsequent years.

With market volatility still a concern and major political headwinds facing the UK, it is worth considering the levels of barrier protection built into those structured products currently in force linked to just the FTSE 100. plotted the barriers of more than 600 FTSE 100 linked products that were distributed through the IFA sector and are still running. The research revealed that despite the retracement in the FTSE 100 since the highs of a year ago, the index still has to fall by a further 40 per cent from current levels before original investment capital is potentially reduced. The nearest barrier would only be breached if the index fell to a level below 3770.7. This level has been seen in the past 10 years, although this was during the height of the credit crisis correction in March 2009.

Such research shows that while structured products are not immune from losses arising from market movements, the level of capital protection built into most FTSE 100 linked structures will provide peace of mind from all but the most catastrophic falls. The performance of a few products linked to esoteric measurements should not overshadow the strong consistent returns delivered by structured products overall over the long-term.

Ian Lowes is founder of