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Given the recent sell off across global equity markets driven by recent FED rate rises, political uncertainty surrounding Brexit and Trump’s continued trade war with China I thought it would be a good time to send a brief note out on structured investments and issuer risks. We are seeing increased demand for defensive and defined return products, along with Structured Deposits.

As you have heard from me many times about Risk and the pros and cons of these products I thought I’d send a note on a topic that is extremely important but sometimes overlooked, counterparty (Bank Risk), where investors buy without taking advice.

If you are a current buyer of structured investments you will more than likely be aware that there are many products available on the market, this is great news for consumers. There are more product providers and banks available now than in recent years which is great for investment and issuer diversity, but this also brings about an issue with having multiple products that look on the surface very similar. In essence the majority of products behave in a similar way, protection levels and payment frequencies although differ, for the most part this is for the investors’ needs rather than the products’ performance. The main areas in which products differ is the Index the product is associated with (FTSE 100, Dual index or EuroStoxx) and the bank who issues the plan.

Investors now have choice in relation to their index preference, along with issuer (Bank) risk, given the wider range of offerings available.  Besides the headline coupon, the bank who issues the product should be looked at and considered carefully as fundamentally you will be investing your hard-earned money into that bank for up to 10 years in some cases. Increased regulations on banks especially those deemed globally important and labelled “too big to fail” are often the preferred choice for client’s money.

Looking at banks and their risks is a complex task and that is why a number of providers have created information data to help with this (Dura Capital/Tempo). What maybe stated is that in the current environment (market cycle), bank risk is considered towards the lower end of the risk concern and as such credit spreads (or what you get paid to lend a bank your money) is very similar across the board. As an investor, you are not being paid much for taking an increased risk so why take the extra risk? Where there is only a very small difference in payment between a “Prime” graded bank and a “Lower median Grade” issuer, so it makes sense to, where possible, select higher credit as you may not give up much in terms of coupon (which is the headline potential rate of return) for the increase in credit security.

If you want a more in depth read on this topic, please see the document attached which Dura Capital have created to endeavour to address the area of risk.

Dura Capital Counterparty Risk

I have often spoken with investors who buy the same plans on a non-advised basis from the same counterparty/issuers, with little or no counterparty/issuer risk diversity.  The coupon available from Plan managers, such as Tempo and Dura Capital, should certainly be considered as a diversifier away from over exposure to one Plan Manager/Counterparty.  If investors were to take ‘advice’ Counterparty/Issuer Risk would certainly be a major focus in relation to investment concentration, if professional ‘advice’ was sought.  Food for thought for many non-advised consumers…..

The Tempo TICS information document, available via our website –, may support non-advised consumers to improve the diversity selection in relation to Counterparty/Issuer and Plan Manager Risk.

Take a good look at TICS’ side by side view on our website that provides quality information in relation to imperative investment information, relative to Structured Product investments.

Structured Deposit Plans

You will be aware that Structured Deposit Plans benefit from FSCS protection, which has created strong demand for the Investec FTSE 100 Kick-Out Deposit Plan 81 at a potential return rate of 6% over 6 years.

Mariana have launched a Digital Deposit Plan, again benefiting from FSCS protection, so for investors looking to benefit from the FSCS protection to complement the deposit offering with Investec, you may wish to consider the plan.  You can view the plan on our Structured Product webpage.  The potential return is 25.5% over a 6 year and 2-week term.  We will be writing to provide a further update on the Mariana products shortly.

Don’t forget the Risks – please refer to our web page for the details of the risks but in relation to market risk performance, unit prices of assets fall as well as rise and the past performance of an underlying index is not a guide to the future performance.

As always, if you require help, simply get in touch.