|
|
Bonds
Structured Products -offer returns based on the performance of one or more indicators. They can be capital secure or capital at risk.
|
Insight Diversified Target Return Fund (29/10/08)
On page 34 of Viewpoint 22 we profiled the Insight Diversified Target Return fund. It has today been announced that the managers of this fund have resigned. We have since moved this fund to a hold rating whilst we assess the new manager.... |
|
|
|
|
 Welcome to the Chelsea Structured Products Department.
Structured Products are designed to offer returns dependent on the performance of an indicator, usually index such as the FTSE100. The products fall into two categories:
Capital Secure Products: These offer a rate of return linked to either one or a basket of indicators and will state that even if the indicator finishes below its initial value your capital will be returned in full. This capital protection only functions if products are held to maturity as there may be exit penalties. In addition, investors should be aware that the credit rating of the institution who holds the liability to pay back the monies is of paramount importance and only those with a credit rating of at least "AA" should be considered.
Capital at Risk Products: These offer a highly geared return on either a single or basket of indicators. They have a level of protection that if breached will erode your capital by a designated ratio. For example, a product may have 40% 'soft' protection; this means that if the indicator falls by more than 40% from its start value and does not return to its start value by the products close, your capital will be reduced by 1% for every 1% the indicator is under its start value.
Example: ABC Investments launch a product offering 200% participation in the growth of the FTSE 100 with 40% soft protection over 5 years, when the start price of the index is 5000.
Scenario A: The FTSE rises to 6000 points over the five year term, this is growth of 20%, with 200% participation the product returns capital plus 40%.
Scenario B: The FTSE 100 never falls below 3000 (the 40% soft protection barrier) but finishes its five year term at 4500. Although the market has fallen the soft protection barrier has not been breached so the product returns capital.
Scenario C: The FTSE 100 breaches the 3000 barrier (40%) during its course and finishes on 4500. Although the finishing value is the same as in scenario B capital will be eroded as the soft protection barrier has been broken. The product returns capital less 10%.
The heightened level of risk means that the opportunities for high returns are greater than for capital secure products. The FSA has a factsheet for all prospective investors. As with the capital secure products, investors should be aware that the credit rating of the institution who holds the liability to pay back the monies is of paramount importance and only those with a credit rating of at least "AA" should be considered.
Remember! All investments carry some risk. Before going any further, please read the Important Notice below.
|
