NDF Possible 13% PA (14.5% with Premier)- but will stock market rise in next 6 years?

Searcher2

I have been recommended, by my financial advisor, a product from NDF called Twin Option Kick Out Plan which could give 13% per annum. It is being offered to me as a low risk option and to me it seems to good to be true.

Basically the starting price is fixed at the FTSE 100 price as of 8th May 2008. If at the 8th May 2009 the FTSE price is higher than the starting price then the offer matures and pays out 13% (subject to capital gains). If not then it rolls over to 8th May 2010 and if the FTSE price is higher than the starting price then the offer matures and pays out 26% (subject to capital gains) and so on. On the 6th anniversary, if the FTSE still is not above the starting level then you get your money back without growth providing the FTSE 100 didn't fall below 50% of the original value during those 6 years. If it has fallen below 50% of the starting price then you could lose some or possibly all of the original investment.

The last part of this sounds frightening.... but in reality if the stock market really was that bad then many other forms of investment would be in a bad way too.

I currently have most of my money in a high interest account but am considering moving 75% of it to this plan.

I know nobody can say - but the chances of the stock market not being higher than current levels for the next 6 years (albeit on the anniversary) or it dropping to 50% of current levels seem to be fairly remote to me. Am I mistaken? Are there any other products similar to this?

dunstonh

This is very similar to the Premier GEB that was discussed heavily in this section in recent times. Except replace the 13% with 16%. The general view was that the Premier GEB was the first GEB in a very long time that actually looked good value.

The only other difference is that on the Premier version that if it dropped 50% then it became a passive tracker on the FTSE100 meaning that you would lose all your money (its impossible for the FTSE100 to have no value. Well subject to nuclear war).

The NDF is clearly not as good as the Premier version however that closed on Monday. However, I have heard they are launching a new version and have suggested that 15% will be the chosen figure.

I would suggest you get the IFA to contact his Premier rep as it may pay to wait a few weeks until the new one is available

Hungerdunger

Before you invest, look here. The index in 2000 was higher than in 2006, so it is quite possible for the Index to go down over a six year period. So while I've been earning a rather dull but fairly safe interest rate on my fixed-term Building Society bonds, in a worst case scenario, you could end up with just your original investment back.

You'll probably be OK; all I'm trying to point out is that there is still a definite risk with this investment.

JDinho

Searcher2 wrote: »

I have been recommended, by my financial advisor, a product from NDF called Twin Option Kick Out Plan which could give 13% per annum. It is being offered to me as a low risk option and to me it seems to good to be true.

Basically the starting price is fixed at the FTSE 100 price as of 8th May 2008. If at the 8th May 2009 the FTSE price is higher than the starting price then the offer matures and pays out 13% (subject to capital gains). If not then it rolls over to 8th May 2010 and if the FTSE price is higher than the starting price then the offer matures and pays out 26% (subject to capital gains) and so on. On the 6th anniversary, if the FTSE still is not above the starting level then you get your money back without growth providing the FTSE 100 didn't fall below 50% of the original value during those 6 years. If it has fallen below 50% of the starting price then you could lose some or possibly all of the original investment.

The last part of this sounds frightening.... but in reality if the stock market really was that bad then many other forms of investment would be in a bad way too.

I currently have most of my money in a high interest account but am considering moving 75% of it to this plan.

I know nobody can say - but the chances of the stock market not being higher than current levels for the next 6 years (albeit on the anniversary) or it dropping to 50% of current levels seem to be fairly remote to me. Am I mistaken? Are there any other products similar to this?

Reads like it is a standard autocallable structured product (there was a good piece in the Weekend's FT Money supplement last weekend.).

I know of some very attractive autocalls, one where you could earn 6% in a a month or two providing the FTSE does fall to 5200 in that time. These products tend to be under researched and the mark-to-mark not always priced in.

Another overlooked factor is that there may well be secondary market liquidity meaning you could trade out, potentially for a gain, before the end of the term. This would depend on who structured the note though

Mikeyorks

Searcher2 wrote: »

I currently have most of my money in a high interest account but am considering moving 75% of it to this plan.

You don't qualify (nor do you have to) how much that is. But it sounds a significant proportion for a single product, which does have some risk attached to it?

The Premier product (min investment £5k) mentioned by Dunstonh also came in ISA form. Potentially giving up on your CGT allowance ..... but that does give a reasonable £cap (max £7200 .. but did also offer transfers in) if the FTSE volatility is worrying. And you suggest that to be the case.

Searcher2

Thanks for all the input so far. For 13% (with NDF) or 15% (potentially with Premier) I would expect an element of risk given that I am only likely to get 5-6% in high interest accounts.

As for the amount I am looking over £100K potentially. I haven't had time to look at the Premier thread.... that's a job for tomorrow. I am not in a rush to move the money yet.

Thanks for the info Hungerdunger. Looking at the May opening figures I see your point.

May 2000 6,327.40
May 2001 5,966.90
May 2002 5,165.60
May 2003 3,926.00
May 2004 4,489.70
May 2005 4,801.70
May 2006 6,023.10
May 2007 6,449.20
April 2008 5,702.10

Food for thought. Though investing on similar terms after that up to 2006 would have paid out.... the million dollar (or 10% extra) question is - is the stock market low at the moment?

dunstonh

Premier still have details of their 16% one on the website for reference. It has expired but at least you can read the details.

Someone on the forums did a check back to 1984 on the FTSE levels and in that period there were two years IIRC that would not have resulted in a positive return. So there is a risk. However, as part of your UK equity allocation for investing, that does seem quite an attractive option. It is not a replacement for cash.

payless

Haven't read the full documents of either product :-

However as well as the "capital at risk" warning based on index performance, one should also take into account that the return of any funds is also likely subject to :

" The issuing institution being unable to meet their financial obligations..."

I assume no FSCS protection ( like the £35K protection on bank deposits).

I remember making this point a few a few years back on these boards, and was told of course they were highly S&P rated institutions behind these products ...... but of course N Rock had a A+ S&P rating in 2006!!

I'm not saying these products aren't attractive , but the full risk should be highlighted

meester

Searcher2 wrote: »

I have been recommended, by my financial advisor, a product from NDF called Twin Option Kick Out Plan which could give 13% per annum. It is being offered to me as a low risk option and to me it seems to good to be true.

It's 13% simple interest, so the actual return is slightly lower if the product lasts longer than 1 year.

Basically the starting price is fixed at the FTSE 100 price as of 8th May 2008. If at the 8th May 2009 the FTSE price is higher than the starting price then the offer matures and pays out 13% (subject to capital gains). If not then it rolls over to 8th May 2010 and if the FTSE price is higher than the starting price then the offer matures and pays out 26% (subject to capital gains) and so on. On the 6th anniversary, if the FTSE still is not above the starting level then you get your money back without growth providing the FTSE 100 didn't fall below 50% of the original value during those 6 years. If it has fallen below 50% of the starting price then you could lose some or possibly all of the original investment.

The last part of this sounds frightening.... but in reality if the stock market really was that bad then many other forms of investment would be in a bad way too.

I currently have most of my money in a high interest account but am considering moving 75% of it to this plan.

I know nobody can say - but the chances of the stock market not being higher than current levels for the next 6 years (albeit on the anniversary) or it dropping to 50% of current levels seem to be fairly remote to me. Am I mistaken? Are there any other products similar to this?

Would suggest you read ALL of this thread on the Premier product (16%):

http://forums.moneysavingexpert.com/showthread.html?t=719557

The historical return of a product @ 16% comes to 11.4%. So a 13% product would probably average out around 8.5%. But of course that is historical. The reality could be different.

The products are described at

http://www.ndfstructuredproducts.com/pages/index.html

The reason it is called Twin Option Kick Out, is because the other option is also linked to the Nikei 225.

This product pays 20% per year, but is much more volatile, since if EITHER the Nikkei 225 or the FTSE 100 loses 50% at any point, you will lose an amount equal to the worst-performing of the two indices. It matures each year if BOTH markets are higher than their start level.

Obviously there is some correlation between the markets, so if one has risen the other is likely to have as well. In the context of 16% with much much lower risk from Premier, 20% does not look compelling.

Incidentally, their Accelerated Growth Plan, which boasts 10x the return of the FTSE 100, is rather less exciting when it sounds, because the growth is limited to 85% over 5 years. That's equivalent, assuming a 6,000 starting level, to increasing to 6510. Which could happen in under a week, never mind 5 years. 8.5% maximum index growth.

This product is actually very similar to the Option 1 Kick Out, given that the capital has the same 50% fall trigger.

The difference is it is a fixed six-year product, and is quite akin to a 'index + 8.5%' bet, in that 85% growth works out at 10.8% per year compound, or 14% simple interest (slightly higher than the 13% in their basic product). Given the +8.5% proviso to get full return, it looks poor.

dunstonh

FSCS protection does apply under investment rules but not savings rules.

payless

I know there are certain FSCS protection s if a mis-sell from a now defaulted IFA but what protection ( if any) does the FSCS give under investment rules if the underlying issuer can not meet its obligations