London, May 2019 – Structured products have been one of the most consistent performers for investors since the financial crisis of 2008, with nearly every product returning at least investors’ initial capital and 88% producing a positive result, new analysis by Lowes Financial Management has found.
The United Kingdom Structured Product Sector Review analysed the structured products issued since the 2008 financial crisis, with 4,398 products issued between January 2009 and December 2018.
The sector as a whole returned an average annualised return of 6.23%, with only 57 of the 3,670 of those maturing in the time period (1.55%) resulting in a loss.
This consistent performance can be attributed to the reliable gains produced by FTSE 100-linked products, with only five such products producing a net loss from the start of 2009 to the end of 2018.
Commenting on the review, Ian Lowes, managing director at Lowes Financial Management, said: “Some people have been wary of the sector since its early days, but the numbers speak for themselves. Not a single product matured with a loss in 2018 and only five FTSE 100-linked products matured with a loss since 2009. The sector has consistently produced steady and predictable gains, which have helped our clients achieve their financial goals.”
A number of key trends have appeared over the past ten years, including the increase in autocall products issued. The autocall provides multiple opportunities for the product to mature, and therefore produce a gain if the required market performance is produced.
In tandem with the increase in autocall products was an increase in products issued with extended term lengths. Whilst three quarters of the autocall products issued in 2009 had a maximum term of less than six years, by 2017 all had a maximum term of at least that length and now more than half of autocalls issued will continue to later years if market conditions dictate it to be necessary.
The issuance of capital-at-risk products, where plans aim to return investors’ capital in all but the most dire market conditions, proliferated. The increased issuance of capital-at-risk products is in contrast to the decrease in popularity of capital ‘protected’ products. In 2009, 92 capital ‘protected’ products were issued. This number had fallen to zero by 2015, as capital-at-risk products became the industry norm.
Of the 2,273 capital-at-risk products that matured in the time frame only 53, or 2.33%, produced a loss.
The counterparties active in the structured product sector in the UK has changed since the financial crisis. Most prominently, Barclays exited the sector, having accounted for a quarter of products issued in 2009. Investec, previously accounting for a third of the sector in 2009 continues to remain a notable name, accounting for 36% of all issuance in 2018.
The range of counterparties in 2018 diversified, with banks such as Credit Suisse, Goldman Sachs, HSBC, Morgan Stanley and Société Générale all accounting for similar shares of the market.
Lowes added: “Since 2009 we have seen extensive developments in the structured product sector. Advisers have recognised the strength of the capital-at-risk autocall, offering substantial return profiles that rival those of equities. The longer maximum terms for autocalls provide improved potential for positive outcomes.
“Structured products have come on in leaps and bounds, and we firmly believe the future of the structured products is in an easily accessible UCITS vehicle, such as the Lowes UK Defined Strategy Fund.”
Lowes recently launched the Lowes UK Defined Strategy Fund, a UCITS vehicle which invests in a variety of strategies most commonly seen within structured investments.
Lowes Financial Management Ltd manages almost £1bn of assets and has invested over £380m into structured investments on behalf of clients.
The Lowes United Kingdom Structured Product Review can be downloaded from: https://www.lowes.co.uk/10-year-review/