Email 4 of 4 …
The Tempo Long Income Plan
Few savers and investors seeking income will need (or welcome!) me explaining that interest rates are on the floor and returns on cash are negligible!
But the fact is, at the risk of depressing everyone, things could get even worse … and savers and investors seeking income really need to understand the issues and consider their options carefully … sooner rather than later!
Everything is upside-down in the strange world of low and negative interest rates!
Regardless of attempts to back track since news first broke about the possibility of the Bank of England using negative interest rates, the BoE has confirmed that it IS considering negative interest rate policy (aka ‘NIRP’, for anyone who likes acronyms!), at least in principle.
And in terms of the BoE trying to persuade the market that it isn’t actually considering negative rates, I’m inclined to think that Hamlet’s famous quote, ‘The lady doth protest too much, me thinks?!’, might be the most apt use of this famous Shakespeare quote since the BoE last had interest rates anywhere near this low … about 300 years ago!
To highlight the issues that negative rates could cause, some private banks already make their HNW clients pay for the pleasure of depositing funds with them! Yes, you read that right! 0.6% apparently, at one Swiss bank, to provide an example!
However, on the flip side, if you live in Denmark, you could try to take out a negative interest rate mortgage! A year ago, Jyske Bank achieved a world first, with a 10-year mortgage with a minus 0.5% interest rate. Customers were, in effect, being paid to borrow!
Everything is certainly upside-down in the strange world of low and negative interest rates!
Focusing on the UK and highlighting the continuing and worsening plight for savers and investors looking for income, National Savings & Investments slashed their interest rates virtually to zero last week.
Both the professional trade press and national consumer press covered this extensively:
FT Adviser: https://www.ftadviser.com/investments/2020/09/21/ns-i-slashes-rates-in-response-to-high-demand/
Money Savings Expert: https://www.moneysavingexpert.com/news/2020/09/premium-bond-prize-rate-to-be-slashed-to-1-/
What about fixed income / bonds?
In the past, investors might have considered fixed income / bonds as a sensible source of income.
However, bond yields are inextricably linked to the level of interest rates, and the current low level of rates, and the prospects of ever lower interest rates, means that yields from fixed income / bonds are similarly on the floor … if not already through it, in negative yield territory, for many years ahead, in many areas of the global bond market.
As a result, many professional advisers and investors are viewing fixed income as an asset class currently offering an asymmetric risk / return profile … neatly summed up as ‘return free risk’?!
Rocks and hard places …
Understandably, many clients may currently be feeling like they are ‘caught between rocks and hard places’, in the search for viable future returns with attractive risk / return profiles.
The Financial Times article which we provided a link to with Email 1 of 4 summed it up neatly (‘Investors wonder if the 60 / 40 portfolio has a future’):
Viable options and solutions …
However, having set out the above points regarding the challenges for savers and investors seeking income, the good news is that there are viable options and potential solutions … particularly for professionally advised savers and investors.
Question: How do you improve on the rates available on savings products, the yields available on fixed income / bonds, and the income available via equity income funds? Put more simply, if you want income, what’s currently offering attractive income?
Answer: Consider investing in the ground-breaking Tempo Long Income Plan!!
Please read on for full details of this exceptional plan …
Tempo has now launched Issue 16 of its product suite, which includes the ground-breaking Long Income Plan.
The Tempo Long Income Plan offers two options, each offering the potential for regular fixed income, payable quarterly, based on a choice of defensive conditions, with an innovative memory feature.
In an ‘(everything?) lower and slower for (much!) longer’ environment, we certainly think that this plan presents a viable option and potential solution for professionally advised saver and investors seeking income.
You can find a summary of the Long Income Plan and links to the full details below, including details of comparable products and our analysis of the potential returns …
As always, please see the full plan literature for full details of the plan and the features, terms and conditions, including the risks.
PLEASE NOTE: the offer period for the Long Income Plan runs until Friday 20 November (unless it closes early).
Demand for Tempo’s plans has been very high recently, so please contact us swiftly if investing is of interest.
THE TEMPO LONG INCOME PLAN
Tempo’s response to the current market environment has been to move the end of term barriers for products in Issue 16 from their usual 60% level (which allowed a 40% fall) to an exceptional 40% level (allowing a 60% fall) over the next decade: the deepest level for any capital at risk products currently available!
NB: However, PLEASE NOTE that the end of term barrier level for this plan, the Long Income Plan, is set at 50% (allowing a 50% fall).
Tempo’s Long Income Plan provides two investment options, each offering the potential for fixed income, payable quarterly, based on defensive conditions, with an innovative memory feature, and opportunities for automatic early maturity from the 3rd anniversary.
The potential annual returns of each option are:
Option 1 is designed to pay income of 4.35% p.a., if the FTSE 100 FDEW is at or above 50% of its start level, allowing the index to fall by 50%, with the benefit of the memory feature.
Option 2 is designed to pay income of 6.0% p.a., if the FTSE 100 FDEW is at or above 75% of its start level, allowing the index to fall by 25%, with the benefit of the memory feature.
The plan’s unique ‘memory feature’ is really compelling.
If a quarterly income payment is missed due to the level of the FTSE 100 FDEW on a quarterly income date, the plan remembers the missed payment, which can potentially be generated on a future quarterly income date.
On the next quarterly income date at which the FTSE 100 FDEW closes at or above the level needed for the option(s) chosen, any missed income payments will be generated, together with the income payment due for that quarter!
What a great feature! If you think that the index level can be expected to be at or above 50% for option 1 or 75% for option 2, in a decade, then the plan can be expected to pay each and every coupon for the decade, unless it kicks-out earlier!
In an ‘everything lower and slower for longer’ environment, for cash and fixed income, and with equity income funds facing significant headwinds, we believe that both of the Tempo Long Income Plan options present a viable option and potential solution for savers and investors seeking income.
AN OVERVIEW OF AVAILABLE AND COMPARABLE* PRODUCTS
The following section provides brief details of comparable products and our analysis of the potential returns on offer currently (as at 28.09.20)
There are only 7 single index linked income structured products available in the market, including Tempo’s LIP1 and LIP2!
> Tempo’s LIP1 offers 4.35% p.a., which allows for an index* fall of 50%, with the memory feature
> Tempo’s LIP2 offers 6.0% p.a., which allows for an index* fall of 25%, with the memory feature
> Re comparable products, the 5 other income products (linked to the FTSE 100) available have higher end of term barrier levels (two are set at 60% and three are set at 65%) and higher income condition levels (set between 75-85%).
The more defensive of the other FTSE 100 linked products (in terms of the 60% end of term barrier level) offers 4.6% p.a. However, the income condition of this product requires the index to be above 75% of the start level (compared to Tempo’s LIP1 which offers 4.85% p.a. if the index is at or above 50% of the start level, and Tempo’s LIP2 which offers 6.0% p.a. if the index is at or above 75% of the start level).
The less defensive of the other FTSE 100 linked products (in terms of the 65% end of term barrier level) offer 5.8% p.a. However, the income condition of these products requires the index to be above 85% of the start level (compared to Tempo’s LIP1 which offers 4.85% p.a. if the index is at or above 50% of the start level, and Tempo’s LIP2 which offers 6.0% p.a. if the index is at or above 75% of the start level).
No other income products have income conditions as deep as Tempo’s LIP1 or have such a deep end of term barrier level as Tempo’s LIP1 and LIP2.
*Comparisons to other products is based on analysis of all products in the market as at 28.09.20, using FVC research reports, comparing potential returns and product features. It should be noted that the Tempo plans use an equal weight, fixed dividend version of the FTSE 100, known as the FTSE 100 FDEW. This was developed by FTSE Russell specifically with the aim of helping investment banks produce better terms on structured products. The FTSE 100 FDEW will perform differently to the FTSE 100, due to the equal weighting and the fixed dividend approach. This means that the returns from plans linked to it might be higher or lower than the returns from a similar product linked to the FTSE 100. Please also see the section below with further important information regarding the FTSE 100 FDEW.
THE UNIQUE TEMPO ‘STATED TERMS OR BETTER’ PLEDGE
Tempo’s plans come with their fabulous ‘Stated terms or better‘ pledge.
This unique feature allows Tempo to increase the terms of a plan above those stated in brochures, if the stock market and other factors during an offer period mean that they can do so.
For example, while the Long Income Plan brochure details option 1 as offering 4.35% pa, if stock market movement and other factors mean that Tempo can increase this further during the offer period, the actual terms may be increased to, say, 4.5% p.a., which would be confirmed following the start date.
What’s not to love about this great feature, which only Tempo offers!
IMPORTANT POINTS REGARDING THE FTSE 100 FDEW | TARGET MARKET
As we’ve explained previously, Tempo have drawn on strong team knowledge of indexation and a research-based approach to index selection, with their plans using an equal weight, fixed dividend version of the FTSE 100, known as the FTSE 100 FDEW.
The FTSE 100 FDEW was developed by FTSE Russell specifically with the aim of helping investment banks offer improved terms (in other words, higher potential returns or lower risks) on structured products. Société Générale have an exclusive license with FTSE Russell to use the FTSE 100 FDEW. And Tempo have agreed exclusivity to use the index in their plans with Société Générale
However, it should be noted that the FTSE 100 FDEW will perform differently to the FTSE 100, due to the equal weighting and fixed dividend approach. This means that the returns from plans linked to it might be higher or lower than the returns from a similar product linked to the FTSE 100.
Neither equally weighted nor market capitalisation weighted indexes are better or worse than the other. Each offers a different approach and has different merits: risks and returns will be different for each and will depend on the future stock market environment and the performance of the companies in each index.
While the fixed dividend approach can help provide higher potential returns or lower risks for structured products, it can affect the level of the FTSE 100 FDEW negatively, when the fixed dividend is higher than the level of dividends being paid by companies in the index.
It is important to carefully consider the current level of the FTSE 100 FDEW, the level of its fixed dividend and the outlook for its future level.
Importantly, Tempo have identified the target market for investors in Issue 16 as investors who have a positive view of the future level of the FTSE 100 FDEW, over the medium to long term.
Information about the FTSE 100 FDEW can be found in the plan brochures.
ALL OF TEMPO’S PRODUCTS ARE ‘DELIBERATELY DEFENSIVE’
Tempo’s products are described as ‘deliberately defensive’, meaning that they are all designed so that they can generate some or all of their returns without requiring the market index to which they are linked to rise, with a defined level of protection should the market index fall.
Tempo’s products benefit from the firm’s operational strength and rigorous approach to governance, are backed by strong issuers / counterparties, and are based on a single index, with a deep end-of-term barrier.
These are the Tempo hallmarks.
We think this approach has real merits and can add real value for investors in balanced and diversified portfolios, in the current market environment.
DON’T FORGET THE RISKS
As with all forms of investment there are risks involved. These plans do not guarantee to repay the money invested. The potential returns of the plans and repaying the money invested are linked to the level of the stock market and also depend on the financial stability of the Issuer and Counterparty Bank.
Past performance is not a guide to future performance and may not be repeated. Investment involves risk. The performance data does not take account of the commissions and costs incurred on the issue and redemption of shares. The value of investments and the income from them may go down as well as up and investors may not get back any of the amount originally invested. Because of this, an investor is not certain to make a profit on an investment and may lose money. Exchange rate changes may cause the value of overseas investments to rise or fall.
As always, the recommendation and common sense approach is to consider product solutions as a portfolio, never over-exposing oneself to a point of financial pain and suffering liquidity or counterparty over exposure.
Please ensure that you view the plan documents for full details of the features and the risks.
ONLY AVAILABLE WITH ADVICE … BUT WITH A SPECIAL DISCOUNTED FEE FOR ADVICE AND TERMS THIS GOOD, WHY WOULDN’T YOU …
Tempo’s products can only be accessed with advice, however unlike many ‘execution only’ discount service providers Best Price is able to offer advised service and offers a special discount ‘best price’ of just 1.5% for doing so.
The promotion of the plans does not constitute ‘advice’ to invest. Advice is always specific to an individual investor’s circumstances and needs, following the process of ‘know your customer’, with the aim of ensuring that any product is suitable for an investor.
Paying 1.5% for advice (as opposed to 0.5% without advice), to access products offering significantly greater potential returns, is an offer worth considering.
TO FIND OUT MORE
To access the literature for these products:
Click here – https://bestpricefs.co.uk/tempo-structured-products/
Demand for the Tempo products is expected to be high.
So, we’d certainly suggest early contact if you are interested to invest in Issue 16, in order to try to ensure availability and access.
Please contact us to discuss any aspect of these products.
Best Price FS Team