Structured product investors enjoyed strong performance in 2020
The economic impact of coronavirus and the global pandemic did not prevent 2020 being another successful, inflation-busting year for structured products, according to analysis by StructuredProductReview.com.
However, the pandemic-induced fall in the FTSE 100 Index was ultimately reflected in the maturity performances of structured products for the year.
Ian Lowes, Founder of StructuredProductReview.com, says: “Analysis shows that structured products were not immune to the truly unprecedented conditions affecting markets. While average maturities were understandably depressed, the average return was still inflation-beating with several examples of exceptional returns.
“Given a degree of market recovery that’s already taking place we can look forward to more maturities throughout the coming year with many likely to show strong performance.
“Financial advisers need to properly consider structured products as part of a balanced portfolio for many of their clients. The sector is well regulated, has become a lot less complex, and many plans regularly outperform other investment products, while providing contingent capital protection against market falls.”
The latest analysis of structured products is featured in the Annual Performance Review 2021, produced by StructuredProductReview.com, a dedicated research service conceived, created, developed and maintained to help professional advisers engage with the structured products sector. The report provides a comprehensive overview of structured product performance of products that matured in 2016-2020. It provides an independent summary of best and worst performing products.
The Review reveals that quarter one, the sector’s best performing in 2020 saw 108 plans maturing, produced an average annualised return of 5.7 per cent; however, for last year’s remaining quarters Q2, Q3 and Q4 the average annualised returns of maturing plans were 0.72 per cent, 1.6 per cent and 2.44 per cent respectively.
These averages were impacted by a reduced number of autocall product maturities occurring throughout the year. Most autocall/kick-out maturities were deferred until later years, where the potential return will be greater.
All told, and despite market turmoil, from the 235 plans that matured in 2020, the average annualised return was 3.52 per cent over an average term of 4.8 years. Though comfortably beating inflation the sector’s average annualised returns in 2020 were lower than in recent years. Average annualised returns for all maturities were 5.73 per cent in 2019 and 6.37 per cent in 2018.
Throughout 2020, 16 of the 235 structured products matured at a capital loss. This compares against four loss-making maturities among 334 maturities in 2019.
Lowes adds: “These were inherently riskier share or commodity linked plans, many of which had been forecast to mature with losses in 2020 for several years, albeit the market fall made matters worse.”
At the other end of the performance table, some structured products showed impressive maturities despite falling markets. This included an Investec plan that matured in October with a 66 per cent gain despite the FTSE 100 being 5 per cent lower over the term. The best performing maturity was a share linked plan – the Hilbert 3 Stock Defensive Autocall Issue, which matured after just six months returning 10.075 per cent.
To put the year in context the Annual Performance Review included maturity data from the preceding five years, dating back to 2016, and shows the weighted average annualised returns for the five years.