Investment Markets remain volatile….
Where are the opportunities?
It is clear that investors who are medium to long term in their ‘thinking’ (which is a pre-requisite to invest!) are clearly looking at how to deploy capital in order to gather decent growth and income potential, against a backdrop of effectively no return for holding cash like assets.
As an investor, would you consider and be acceptant about the FTSE 100 FDEW Index falling by 35% over a 10 year period and delivering 9.25% p.a., or at least 60% down or better to return capital? (Of course, we must point out that with all investments, the outcomes are not certain as unit prices and indices can and do fall as well as rise).
There is no such thing as no ‘Risk’, so investors must be aware of the risks. With ‘professional advice’ ensuring that the risks are suitable to meet the needs of the investor, explaining the layers of risks to potential investors with clarity, is essential.
An example of a popular plan that investors should consider (and is relatively simple to explain) is Tempo Structured Products Long Kick Out Plan – Option 2 (LKO2).
Firstly, and fundamentally, ‘credit risk’ – the risk of issuer/counterparty failure. Satisfying oneself – with supporting professional input – on the ‘credit risk’ aspect – Société Générale, SG, is a leading French bank. It operates across three core business areas: retail banking, international retail banking and corporate and investment banking. Its total assets exceed $1.5 trillion, it has approximately 149,000 employees and more than 44 million customers (source: Thomson Reuters and FT Banker Database, 01 June 2020). SG is one of 30 G-SIB Banks in the world that come under a higher level of scrutiny. The Financial Times Banker Database monitors approximately 5,000 banks around the world. Every year, the Financial Stability Board, based in Basel, Switzerland, categorizes 30 of these as Global Systemically Important Banks (‘G-SIBs’). As the name suggests, G-SIBs are the more important (and usually bigger and stronger) banking groups in the world.
The rationale is that Risk is ‘everywhere’ so managing the risk with investor balance is essential.
What are the parameters at play around ‘market risk’ – With the Tempo LKO2 plan it has a defined return of 9.25% pa and is achieved in the following clearly defined ways and by legally binding contract if SG is creditworthy:
We believe this to be one of the most attractively priced structured products in the market currently and has the potential to deliver nearly double digit returns, whilst still being significantly defensive in shape, at a time when investment markets are volatile and uncertain across the investment spectrum.
Tempo use an exclusive index, which is a comparable index to that of the FTSE 100, especially in the similar performance since launch in March 2017, similar volatility measures and high correlation. The FTSE 100 FDEW is developed, calculated and published by FTSE Russell. It measures the performance of the same 100 largest companies on the London Stock Exchange (‘LSE’) which make up the FTSE 100. However, as its name suggests, the FTSE 100 FDEW is different to the FTSE 100 in two important ways:
- The 100 shares in the FTSE 100 FDEW are all ‘equal weight’, at 1%, by FTSE Russell, instead of being weighted according to their market capitalization (which means how big or small each company is, based on the value of its shares).
- The FTSE 100 FDEW is based on a total return index. This means that all of the dividends paid by the companies are included in the FTSE 100 FDEW. However, a ‘fixed dividend’ of 50 points per year is deducted when FTSE Russell work out the FTSE 100 FDEW level.
Further details in relation to the main market will follow (the data is a little heavier!).
Therefore, in conclusion at a time of much uncertainty, Tempo’s LKO plan and others offer attractive coupons, defensive in nature, with a strong issuing bank, SG and delivered by legally binding contract.
Click the link to read more about the full range of plans, including the attractive ‘Income Plans’:
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.
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.
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 liquid or counterparty exposure.
If you require Independent Financial Advice in relation to how the plan meets your needs – simply get in touch and we will guide you through the regulatory process, providing a suitability (Regulated) recommendation.
Richard & the Best Price FS Team