This is nearly 20% higher than the returns of maturing structured products in the comparative quarter last year, where the average annualised return was 6.37% per annum over an average term of 3 and a half years.
96% of products, that is 129 products, made a gain for investors. Against these positive results, 5 returned capital and only 1 made a loss.
All of the FTSE 100-only linked products matured with a gain. This made up the majority of products, with 98 out of the 129 products linked to this index. Given the strong performance of the UK index, these positive results are understandable. It should be appreciated that these results have been achieved whilst protecting investor’s capital from all but the most extreme events.
The products linked only to the FTSE 100 made an average annualised gain of 7.66% over an average term of 4.11 years, while the products linked to a variable outside the FTSE, or the FTSE as well as another measurement, made 7.38% over 3.75 years.
The average total return of the products that matured in the third quarter of this year was 32.93% over an average term of 4 years. Looking at the top quartile of product maturities, the average annualised return was 12.26%, while the bottom quartile was 3.38%. Many of the best performing products were growth plans, as products that matured in the third quarter of this year struck in 2008 and 2009 when volatile market conditions led terms to be attractive. The subsequent market recovery has led many auto-call (kick-out) plans to already have matured. Growth products were coming to the end of their fixed term.
The fact that only one product matured with a loss shows the sceptics that structured products add diversification to portfolios and can offer attractive returns with a degree of protection. Now, there are products on the market that can return a gain even if the index falls over the term up to a pre-defined level. These defensive structured products and their super-tracker cousins offer the potential to massively outperform the market, as well offering protection from all but the most severe market falls. With defined returns in all defined market circumstances structured products are a good alternative to traditional passive investments.
The range of products currently available are exposed to approximately ten major counterparties and this enables investors to diversify the credit risk in their portfolios. Some products are exposed to a range of financial institutions rather than just one and this can further serve to reduce the risk of catastrophic loss in the unlikely event of a bank failure.