2023 saw continued growth and success for the UK retail structured product sector with the highest number of plans issued in any year to date and it being one of the best in terms of maturity performance, according to a new financial study.
More than 96% of plans that matured during 2023 – some 608 out of a total of 629 – gave positive returns for investors and only 6 returned a loss. Every maturing structured product delivered results exactly in line with the contracted, defined outcomes specified at the outset.
The data and thorough overview of the retail structured products sector covering the maturities that occurred in 2023 and the preceding four years can be found in the recently published Five-Year Performance Review 2024, by StructuredProductReview.com.
The data reveals the 629 maturities gave an average annualised return of 6.51% over a term of 3.14 years, with upper and lower quartiles of 9.91% and 2.84% respectively. The average return and upper quartile average were both the highest for the last five years.
Less than 1% of maturities – six plans – realised a capital loss, compared to 1.27% for the five-year average, with the returns of those six linked to the performance of three individual company shares, and as such more of a speculative investment for the more adventurous investor. Structures of this type are very rare in the UK retail sector where the FTSE 100 is the prevalent underlying measurement.
“Investors in retail structured products enjoyed another positive year with the overwhelming majority rewarded with strong returns, all exactly in line with the contracted, defined outcomes specified at outset. In comparison to the last five years, the headline numbers for 2023 show it to have been the best performing year for the sector in most areas” said Ian Lowes, MD at Lowes Financial Management and founder of StructuredProductReview.com.
He added: “FTSE linked, capital-at-risk autocalls continue to be the most common shape. Typically, these are designed to mature on the first relevant anniversary that the FTSE 100 Index (or FTSE CSDI*) is above a specified reference level – generally the level recorded at outset, or percentage of it, which for step-down contracts periodically reduces throughout the term. These structures certainly have not disappointed. Over the last five years these have delivered an average return at maturity of 7.18% per annum, over an average duration of 2.45 years and as such, have been amongst the most successful and consistent element of many portfolios.”
“With the upper quartile of this subsector consistently delivering over 9% per annum and the lower quartile still topping 5% per annum, the returns have been at levels many passive FTSE investors, let alone active managers, would have been grateful for over recent years. The latest maturity results add to the significant weight of evidence proving that, beyond a handful of high-risk strategies, UK retail structured products have consistently delivered for investors with very few exceptions. The defined returns nature of these bank-backed contracts is such that they will rarely disappoint other than in very extreme circumstances.”
“The team at StructuredProductReview.com hope that investors and advisers alike find the analysis the review provides informative. If you would like to discuss any aspect of this review or structured products generally, please do not hesitate to get in touch.”
Other key facts among the data are:
- Apart from 2022 which saw no plans realising a capital loss, 2023 was a successful year in comparison to each of the preceding four years and the five-year average.
- Collectively, the 565 maturing capital at risk plans produced an annualised return of 6.90% over an average duration of 3.02 years, beating the five-year average by 0.27%.
- The FTSE 100 (including the FTSE CSDI*) continued to be the most prevalent underlying measurement utilised in isolation, making up almost three-quarters of maturities in 2023.
- FTSE linked structured deposits over the last five years matured with an average annualised return of 3.51% earned over an average term of 4.96 years.
- Once again, no maturing FTSE 100 only linked plan produced a loss for investors.
Ian Lowes said: “Experienced advisers will know that attempting to time the market or predict the extent of short-term direction is a futile exercise. Understanding that most market movement is just noise, we believe that the cap in returns on most structured products are at a more than acceptable level for most and since the terms are defined at the outset, they are highly unlikely to disappoint. The reward for time in the market outweighs the headaches of attempting to time the market, especially if you get it wrong.”
“Of course, it should be noted that structured products don’t guarantee a positive return – deposit-based products aside, even the most vanilla structured investments could give rise to capital losses in very adverse circumstances.”
“In our view, based on the evidence, all financial planners and advisers should be seriously considering structured products for clients’ portfolios, as part of their diversified investment strategy.”
You can access the Five-Year Performance Review 2024 by visiting StructuredProductReview.com/2024-review.
*The FTSE CSDI measures the performance of the same 100 shares in the same weightings as the FTSE 100 but accounts for dividends differently. The two are over 99% correlated.
