We'd like to remind Forumites to please avoid political debate on the Forum... Read More »
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Barclays wealth "defined returns plan"
King_Weasel
Posts: 4,381 Forumite
Any views on this plan, 1 of 3 currently offered, based on the FTSE100? Closing date is 30 September.
The plan is based on the FTSE100 level on 14 October 2010. If the level is higher at close on 14 October 2011 the plan returns capital plus 9.1%. If not, the plan continues for another year, when 18.2% is paid on the same condition, and so on until a final date of 14 October 2016 when I calculate 54.6% is added. If the index is then below the start level capital is returned but no bonus. However, if the index has dropped by more than half, capital is also reduced pro rata (so falling by at least a half).
I'm not usually tempted by these products, but this one seems quite attractive if the further risk of tying capital up for 6 years is accepted. Any views?
King Weasel
The plan is based on the FTSE100 level on 14 October 2010. If the level is higher at close on 14 October 2011 the plan returns capital plus 9.1%. If not, the plan continues for another year, when 18.2% is paid on the same condition, and so on until a final date of 14 October 2016 when I calculate 54.6% is added. If the index is then below the start level capital is returned but no bonus. However, if the index has dropped by more than half, capital is also reduced pro rata (so falling by at least a half).
I'm not usually tempted by these products, but this one seems quite attractive if the further risk of tying capital up for 6 years is accepted. Any views?
King Weasel
However hard up you are, never accept loans from your friends. Just gifts
0
Comments
-
IMO, this one seems particularly bad. Your capital isn't fully guaranteed and you may lose over 50% if there's another crash in the next 6 years.
You only get any benefit if the index is higher on 5 specified days over the next 6 years.
You don't get any dividends.
As always, if you think the market will do well, why not invest directly, or through UTs/OEICs? If you think it will stay the same or fall, save your money in an account where your capital is protected.
I'm not a fan of these things - they always seem more of a gamble than an investment.You've never seen me, but I've been here all along - watching and learning...:cool:0 -
Terrible, terrible products.0
-
-
This product is just a variation on a theme. Typically, they are all underpinned by a bond. Imagine, for example, you have £20K to invest. Well take £15,820 and stuff it in a 5 year bond at 4.8%. This guarantees return of your capital after 5 years. But you have £4,180 left. From this money, Barclays will steal their expenses, commission, profit, and bosses' bonus. The rest they will put into a rather complex 'leveraged' financial instrument. [Dare I say hedge fund?]
The leveraging (basically borrowing extra money) is used to exaggerate and magnify gains on the FTSE, but this also magnifies losses - hence some rather harsh 'penalties' if FTSE doesn't perform. Compare this with putting your own £4,180 straight into a FTSE tracker. No-one can say what it would be worth in 5 years, but I bet worse case £3,000, best case maybe £5,500.
Personally, I think you'd be just as well off physically putting the one amount into a bond, and the balance directly into some OEIC/Unit Trust that is highly leveraged. Worst case, you lose the lot (but you still have the bond). Best case, you will get the full amount of whatever growth the leveraged fund has produced.
Alternatively, just try doing calculations based upon bunging half your money in a 4.8% bond, and the other half in a cheap FTSE tracker. Probably that might give roughly the same, or better, 'risk/reward' profile.0 -
LongTermLurker wrote: »IMO, this one seems particularly bad. Your capital isn't fully guaranteed and you may lose over 50% if there's another crash in the next 6 years.
You only get any benefit if the index is higher on 5 specified days over the next 6 years.
You don't get any dividends.
As always, if you think the market will do well, why not invest directly, or through UTs/OEICs? If you think it will stay the same or fall, save your money in an account where your capital is protected.
I'm not a fan of these things - they always seem more of a gamble than an investment.
I'm not a fan, either, as a rule.
True, capital is not guaranteed, though to lose you need a drop of at least 50% on 14 October 2016 compared with 6 years earlier.
But to get benefit the index only needs to be higher on ANY ONE of 6 days, not all of them.
However, as you say, you need to compare it with other more flexible ways of equity investing.However hard up you are, never accept loans from your friends. Just gifts0 -
Hi
These types of plan do seem to stir up some strong feelings, with opinion deeply polarised. However, some of these plans do have strong advocates, read for example David Stevenson in Saturday's FT; he often comments on these types of plan and seems to be a fan of some. I have heard him speak and he is a very canny investor.
As with any investment plan it is a case of analysing the potential risks and balancing these against the potential rewards.
With regard to risks I am amazed that no one has mentioned the ‘Counterparty’ risk associated with these types of plans, in this case I believe that the counterparty is indeed Barclays themselves. In a nutshell and I’m paraphrasing a bit here, if Barclays are not here in six years time the investor will get no money back. It’s for each individual investor to assess whether he or she finds this acceptable.
As for the potential return of 9.1% per annum (and remember this is simple and not compounded) this needs to be seen in the context of the risk that is being taken. Some posts on here seem to promote the view that a tracker would do just as good a job, however is this really the case. The HSBC FTSE 100 Index Fund (I’ve shown this fund as it has such a low annual management charge of 0.25%) has produced a total return of 19.50% over the past five years, which probably have given the investor a few sleepless nights too!
You have to balance up the known return with the known risk that a Structured Product offers.
Clearly it isn’t flexible, although there are versions of these products that have a quoted price and can therefore be sold prior to redemption.
Personally, and this is not advice, I think for the potential risk a return of 9.1% per annum is not too shabby.
the Cautious Investor0 -
What about from the product spec:
3% commission - can be sacrificed upon request on a one-for-one basis
Does this mean there are explicit charges, or is 3% commission a sales commission (I could only find the product on a Barclays website aimed at financial advisers)?0 -
3% commission - can be sacrificed upon request on a one-for-one basis
That is if it is bought via an IFA distribution channel. Barclays keep the lot if you buy from them.Does this mean there are explicit charges, or is 3% commission a sales commission (I could only find the product on a Barclays website aimed at financial advisers)?
It is not explicitly charged unless you go for early surrender.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
That is if it is bought via an IFA distribution channel. Barclays keep the lot if you buy from them.
A quick search suggests that you could probably get 1% cashback off online brokers sharing their commission with you as well.
So if it kicks out after 1 year, it will have cost Barclays 9.1% in returns and 3% in commission???
I know they will hedge it out with FTSE options, but their cost of funds on what is quite a generous structured product must be much bigger than normal for this one.
I'm well aware of how crap most structures products are, but if I didn't need all my savings to be liquid, even I'd be tempted by this one.0 -
A quick search suggests that you could probably get 1% cashback off online brokers sharing their commission with you as well.
online brokers are IFAs with a website.
So if it kicks out after 1 year, it will have cost Barclays 9.1% in returns and 3% in commission???
yesI am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 351.6K Banking & Borrowing
- 253.3K Reduce Debt & Boost Income
- 453.9K Spending & Discounts
- 244.6K Work, Benefits & Business
- 600K Mortgages, Homes & Bills
- 177.2K Life & Family
- 258.2K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.2K Discuss & Feedback
- 37.6K Read-Only Boards