Dura Capital’s 10.35% Headline FTSE Autocall rate – Standard Autocall vs defensive autocall?
The UK retail structured products market is dominated by defensive auto calls. This is generally because of the historic probability of positive outcomes. Typically a lot of these products would have never lost capital and historically would have repaid your return within the first 3 years in a large percentage of products. Past performance should not be taken as a guide for future performance. As structured products are not actively managed and contract based, if large global indices behave as they have for the last 3 decades in the case of the FTSE 100 then outcomes are likely to be positive but investment market and index outcomes are uncertain at the most predictable of times, so investment decisions must always be made with balanced consideration and knowledge that ‘Risk outcomes’ can deliver to the ‘negative’.
If we remove the defensive barriers in an autocall and instead have the observation points at 100% of the initial index level what happens? Well firstly the coupon usually increases from the circa 7% mark to the 10% mark. Most important however is what it does to the historical and forward-looking numbers….?
Historically (using FVC’s report) there is no capital lost in either of Dura Capitals products whether this is looking at defensive or a standard auto call. Ok then so how long is the expected life of an auto call if you are to remove the barriers?
If you look at data from the independent reviewer of structured investments that is FVC (http://www.structurededge.co.uk/productfilter.cfm) then whether there are defensive barriers or not there is no significant difference. When looking at Dura Capital’s current range – In the first 3 years over 70% of the time the product would have matured.
Defensive barriers do offer the opportunity to get a positive return even in falling markets however historically when markets have taken a tumble then there has been a fairly quick recovery resulting in products even without defensive barriers performing well. This should not be seen as advice and simply a summary of historic performance. FVC also put together a forward-looking scenario analysis of which they have a predicted probability for capital loss, whether the products have defensive barriers or not typically the predicted numbers are very similar.
Investment Market Risk
The past performance of investment markets is not a guide to future performance. The detail of the product, or any product discussed in articles, is not an advice recommendation to ‘buy’. Advice is always specific to an investor’s wants and needs. The article is intended to attract your attention to the product and the contract terms. If you wish to purchase the Dura product, taking advice, simply get in touch.
Dura’s New Contract Terms
Dura Capital Citi FTSE 100 Autocall Plan 28
This Plan is designed to repay your initial investment and deliver a return dependent on the performance of the FTSE 100.
- Potential return of 10.35% p.a.
- Dependent on the performance of FTSE 100
- 65% capital at risk barrier at maturity
- Maximum term 8y maturity
These terms are attractive when considered against many peers (consider contract terms and counterparty financial strength).
If at the end of year 1, 2, 3, 4, 5, 6, 7 or 8 the Index is equal to or above its Initial Index Level, the Plan will auto call (mature) returning your initial investment plus a fixed return equal to 10.35% p.a. not compounded.
If at the end of 8 years the worse performing Index is lower than 100% of its Initial Index Level, your investment will have earned no return.
Who Is the Plan Aimed At?
This Plan is targeted at clients who are looking for equity-linked returns over an 8-year period but are comfortable that the investment may mature early. It is also intended for people who are cautious on equity market growth.
Investors should be prepared to risk their capital to have the potential of achieving higher returns. Investors should be able to understand complex products and the risks associated with this investment.
Don’t Forget the Risks – https://www.bestpricefs.co.uk/structured-products/citi-ftse-100-autocall-plan/#risks