Structured Product 5-year review shows strength of investments across market conditions

Ian Lowes, founder of StructuredProductReview.com.
  • Autocalls dominate and deliver strong returns across the five-year period
  • Market trend to shorter duration plans is cause for concern

Structured products have continued to deliver for investors over the past five years despite the effects of the global pandemic on stock markets, with autocalls in particular providing strong returns for investors’ portfolios, a new report reveals.

The latest report from StructuredProductReview.com provides a comprehensive analysis of structured product performance of all intermediary distributed products that matured from 2017-2021, including the two years affected by the pandemic, during which the stock market fell by over 30%.

Across the five years, an average of 429 products have matured every year with an average of just 6 plans a year returning a loss. The average duration of all plans – growth, income and autocall – before maturity was 3.76 years.

In performance terms, the average annualised return for the five years across all products was 6.12%; 9.66% top quartile and 1.93% bottom quartile.

In the pandemic years (2020 and 2021), 2021 saw 91% of all maturing products generate positive returns for investors, with a further 7.6% returning capital only, protecting against loss from the stock market fall, and 1.1% made a loss. As to be expected, 2020 was the worst performing year, with 70% of plans producing positive returns, while 24% returned capital only and 7% made a loss.

While the review covers the full range of plans, autocall products have been the standout plans in the market across the five years. 1,192 capital-at-risk plans matured, of which 1,141 delivered positive returns (95.7%) – at an average annualised return of 4.24% and 10.31% (bottom and top quartile).

During the two pandemic years, 94% of autocalls delivered positive returns, 4.4% returned capital only and under 2% turned in a loss.

Ian Lowes, founder of StructuredProductReview.com, says: “The data shows that overall, structured products continue to deliver positively for investors, making them a useful addition for investment portfolios.

“With considerable uncertainty still plaguing the markets, using investments which can offer defined returns and can help protect against falls in the market, can complement the funds and other investments in a portfolio, helping to diversify the risk return profile.

“As with all investments, product selection with the right risk for the investor is crucial. It is noticeable that in the main, the plans which lost money were among the riskiest, typically using individual stocks as the underlying.

“Autocalls have proven to be the most popular investments and overall have not disappointed investors. In a falling market, their ability to roll-on potential gains to the next observation date, mean that they have a better chance of weathering downturns and deliver increased returns for investors as the market recovers.  

“It is highly noticeable that in every year of the five under review, autocalls products using the FTSE 100 all delivered positive returns for investors; none returned capital only or made a loss.

“The benefits of autocalls were particularly seen in 2020 when the majority of autocalls were deferred to the next observation date. As a result, 2021 saw the highest number of autocall maturities in the five years (395). And in 2021, autocall maturities once again delivered strong returns for investors – with an upper quartile average return of 9.69% and lower quartile of 4.88%.

“The ability of autocalls to provide a level of protection in times of market volatility is a considerable benefit of these products and one reason that we are concerned by the recent return to 5 year terms for products, when the market had been trending to longer duration, for example 7 to 10 years. The shorter the term of a plan the less time there is for the investment to recover in the event of a market fall. Longer duration products have a better chance of delivering positive returns for investors – rewarding time in the market.

“We would like to see the market return to offering longer duration plans, as we feel this delivers better value for investors.”

A copy of the 5-Year Performance Review is available for download here: https://www.structuredproductreview.com/spr-annual-performance-review-2022/

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