Average structured product beats best cash account in 2013

A survey of 455 structured products that matured in 2013 has found that the vast majority returned investors’ capital in full, with over four-fifths making a profit.

 Average structured product beats best cash account in 2013


A survey of 455 structured products that matured in 2013 has found that the vast majority returned investors’ capital in full, with over four-fifths making a profit.

A survey of 455 structured products that matured in 2013 has found that the vast majority returned investors’ capital in full, with over four-fifths making a profit.

The study from CompareStructuredProducts.com also found that the average annualised return of the products surveyed was 6.72 per cent, significantly beating the best savings accounts and fixed-term bonds which typically pay between 3 and 4 per cent.

The worst-performing 25 per cent of products that matured in 2013 returned 0.52 per cent, with the top 25 per cent generating 12.34 per cent.

Less than 3 per cent of products matured at a loss.

Ian Lowes, founder of CompareStructuredProducts.com, called the results ‘extremely positive’ and added they ‘put paid to any lingering misconception that structured products don’t perform for investors’.

 

 

The majority of structured products available to UK investors offer returns linked to the performance of the FTSE 100, but provide some degree of capital protection, either complete (in the case of structured deposits) or partial (in the case of structured investments).

In theory, investors could suffer a total loss if the institution backing the product (the counterparty) goes bust. The top five counterparties used by the structured products in the survey were Barclays Bank, Investec Bank, Morgan Stanley, Royal Bank of Scotland and Santander. Structured deposits are protected against the risk of counterparty collapse by the Financial Services Compensation Scheme (FSCS), but structured investments are not.

The survey from CompareStructuredProducts.com also looked at returns by product type. Structured deposits, which promise to return investors’ capital in full however badly the stock market performs, generally offer lower payouts. Their average annual return was 4.55 per cent, with the best 25 per cent returning an average 7.45 per cent and the worst quarter 1.5 per cent.

Structured investments, which typically expose investors to loss of capital in circumstances where the stock market falls by 40 or 50 per cent, pay higher returns to compensate for this risk. The 293 ‘capital at risk’ products in the study returned an average 8.28 per cent annually, with the best quarter delivering 13.47 per cent and the worst quarter 2.51 per cent.

Lowes argued that because many of the products under review had been launched prior to the credit crisis of 2008, these returns had been achieved ‘through some extraordinarily turbulent economic periods’. He added: ‘The majority of structured products have not only provided a degree of comfort to investors due to their contingent capital protection which has, on occasion, been extremely useful, but have generated some extremely positive returns.

‘Even if you focus on the negative, the average annualised return of the very worst 25 per cent of the “capital at risk” FTSE 100 only linked products was over 5 per cent.  However, there is no reason why the worst products should be the focus and this figure pales in comparison with the almost 13 per cent average annualised return of the best 25 per cent of the capital at risk FTSE 100 only linked products.’

What Investment’s free guide to structured products is available to download here.

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