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Interest Rates likely to remain low……

With talk in the financial press of interest rate cuts as likely as potential rises, it seems the prolonged period of negative real returns will continue for cash investors.  Savers have experienced over a decade of base rates below 1% which has made it incredibly difficult to find a secure income stream over this period.  With cash savings and a lot of fixed rate bonds struggling to generate above the level of inflation – latest CPI figures for July were 2% – this has meant many cautious investors have seen a negative real return on their holdings (the nominal figure might be increasing, but the buying power has decreased).

Equity Income has been used as an area to combat this with clients looking to benefit from company dividends to provide a regular income.  However, this approach takes on full equity market risk and is also reliant upon the performance and profits of the underlying holdings in order to generate the dividends.  The well published outflows from Neil Woodford’s funds (Woodford Asset Management) and the recent suspension/gating, shows the difficulty that exists in providing solutions in this area.

Structured Products have their obvious merits when it comes to growth, however they can also be a very attractive alternative in providing predictable, sustainable income over defined periods. The reintroduction of Investec’s ‘FTSE 100 Income Deposit Plan – Monthly’ allows investors to do just this without taking any risk to their capital. The plan has a 6-year term with an annual yield of 2.76% paid on a monthly basis (0.23%) as long as the FTSE 100 is above 75% of its starting level.  As with all Investec plans the level of the FTSE 100 is taken at outset, every month as long as the FTSE 100 is above 75% of its starting level it pays the income e.g. an initial index of 7,000 would mean the market would need to be above 5,250.  If the market dips below for any one month it turns off, and if/when it rises above it turns back on again – simple!  Click the link below to read more:

Unlike the majority of Structured Products in the marketplace that are binary in their outcomes, the FTSE 100 Income Deposit Plan – Monthly plan has the potential for 72 payments over the term and therefore a very high probability of providing a positive real return.  Investec’s objective back testing statistics show that if this plan was launched every day since 1984 it would have averaged 68.09 payments from 72.  The plan is fully protected under the FSCS up to £85k, therefore, regardless of the performance of the FTSE 100 investors will receive a full return of capital at maturity.

Investec also have two income solutions within their range of investment plans. The FTSE 100 Defensive Income Plans pay a yield of 4.8% (Option 1) and 6.4% (Option 2) if the market is above 60% and 80% respectively.  The product has an 8-year term with income payments paid on a quarterly basis if these levels are achieved.  The plans also have a feature that allows them to mature early from year two onwards if the market is above 105% of its starting level.  It is important to note that these plans have counterparty risk with Investec Bank Plc along with market risk if they run the full 8-year term and the market finishes below 60% of its starting level.

With the demand for income unlikely to diminish, but the number of viable options in the marketplace doing so, Structured Products can play an important role within portfolios, in particular, to satisfy this need. For further information on these and the rest of our product range please visit the website using the below link:

Don’t Forget The Risks – Please read our ‘Don’t Forget the Risks Section’ by clicking on the following link:

Product Promotion

As always, we must point out that the promotion of products does not represent ‘advice’  Advice is always specific to the needs of the individual/entity.  If you require advice in relation to financial matters, simply get in touch.

Enjoy the first day of the Summer School holidays.

Warmest Wishes.


Best Price FS Team

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