Home Finance Bounce back in maturities for investors in UK structured products during 2021

Bounce back in maturities for investors in UK structured products during 2021

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Investors have seen a significant return in performance among maturing structured products during the financial roller-coaster of 2021, a new UK report reveals. 

More than 91% of retail structured financial products that matured during 2021 saw positive returns, with 7.6% of maturities returning capital only. 

Among a total of 529 product maturities only six plans realised a capital loss in 2021, and all were share-linked plans. This compares against 16 among only 235 structured product maturities in 2020 realising a capital loss when the markets were much more volatile. 

In 2021, the 529 products that matured represented a 125% increase on the previous year. The increase was in large part due to the market correction following the crash in March 2020, which meant that many of the autocall products saw their potential maturity that year rolled on to subsequent years, with commensurate, increased returns. Three quarters of all plans maturing in 2021 were autocalls, whereas in 2020 such products accounted for just 37% of maturities. 

Nevertheless, these headline figures show a marked improvement in performance and maturities compared to 2020, according to the latest analysis featured in the Structured Products Annual Performance Review 2021, produced by Lowes Financial Management, a leading UK financial adviser. The report provides a comprehensive overview of all UK retail structured product maturities throughout the preceding calendar year. It provides an independent summary of the best and worst performing products. 

Ian Lowes, MD of Lowes Financial Management, said: “Structured products once again have produced sterling returns for investors, doing what they say on the tin. Despite the turbulence and uncertainty caused by the coronavirus pandemic, 483 delivered positive returns for investors, 40 returned capital only and just six lost capital. The latter were all, high risk plans linked to individual shares, which Lowes had previously forecast would mature negatively.” 

The Annual Performance Review shows that average annualised performance across all products (capital-at-risk and deposit plans) was 6.20% over an average duration of 3.39 years with an upper quartile average return of 9.34% and lower quartile of 2.56%.

Overall, the average annualised return for capital-at-risk plans was 6.82%, with a top quartile average of 9.57% and lower quartile, 4.23%. For deposit plans, the quartile returns were respectively 4.87% and nil (solely returning capital). 

For context, the average annualised returns for all 2020 maturities, including deposits, was 3.52%, against 5.73% in 2019 and 6.33% in 2018. 

Consistent with recent years, the FTSE 100 Index in isolation was the most prevalent underlying measurement used, accounting for 62% of all maturities. 

Ian Lowes explained: “There’s no denying that coronavirus and its worldwide socioeconomic impacts have been colossal during that last couple of years. In 2020, we suffered one of the worst performances and returns in maturities since the aftermath of the financial crash of 2008/9 – and yet it was still a successful year for retail structured products. 

“Maturities have done extremely well in 2021. The benefit of deferred autocalls in 2020 came through last year helping investors secure a strong return.” 

Lowes, which has frequently been recognised as amongst the best UK investment advisers in various national awards, has become one of only a few specialists in the structured products sector. As well as analysing the performance of all structured products and data covering more than 8,000 plans, Lowes has its own process for identifying ‘Preferred’ plans – those they view to be the best available on the market at the time of launch. 

The Lowes ‘Preferred’ maturities (82 out of a total of 529 plans) outperformed their respective sub-sector averages in most instances with an average annualised return of 6.99% across an average 4 years. None of the loss-making plans that matured in 2021 had been granted Lowes ‘Preferred’ status. 

Ian Lowes added: “We are delighted with the inflation-beating performance of our ‘Preferred’ plans. More generally, the structured products sector continues to evolve and develop. Many plans regularly outperform other investment products, while providing contingent capital protection against market falls. They can no longer be dismissed by any independent investment adviser.”

The best performing maturity in 2021 was Hilbert Investment Solutions Kick Out Series 3 Stock Defensive Autocall Issue 6, which was a high-risk investment linked to the performance of three individual FTSE 100 companies. This plan matured early after six months, achieving a gain of 10%, or annualised return of 21.19%. 

Conversely, the worst performing structured product of 2021 was Mariana FTSE 3 Step Down Kick Out Plan 2, which again was linked to the performance of three individual FTSE 100 companies. This plan failed to mature early, running the full six years and realising a loss for investors of 52.92%. 

A copy of the Annual Performance Review can be found by clicking here: www.Lowes.co.uk/SPReview2022

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