Investec FTSE 100 Enhanced Kick Out Plan.
Options
triplea35
Posts: 339 Forumite
I have had success with this these plans since 2010. All my plans, bar one, matured after Year one and the other after Year 2.
I understand all 118 plans since inception have successfully matured, the longest running to Year 3.
The current offer for 10.25% is due to close. The product is described as a medium risk investment.
I understand the risks, both to not getting a return on capital, and the risk to capital if during the term the the FTSE has fallen by 40% and not recovered by the end of the term.
I am quite happy to to take the risk of foregoing , say 1.5% interest currently in Marcus, for the 10.25%, but obviously not quite so keen on a significant reduction in capital but would accept it.
I have one plan running at the moment, first anniversary will be March 2019 and will mature if the FTSE is 6888 or above. Add what I invest in the current offer I would still have less than 5% of my savings/investments in the products.
I tend to ladder purchases in this product to around every 6 months. However I seem to be currently getting cold feet as to where the FTSE is going
So my question really is what likelihood is there that that FTSE may drop more 40% over the 6 year year term and not recover.
Is this a major part of the risk element of these products or is it the risk of no return.
I understand all 118 plans since inception have successfully matured, the longest running to Year 3.
The current offer for 10.25% is due to close. The product is described as a medium risk investment.
I understand the risks, both to not getting a return on capital, and the risk to capital if during the term the the FTSE has fallen by 40% and not recovered by the end of the term.
I am quite happy to to take the risk of foregoing , say 1.5% interest currently in Marcus, for the 10.25%, but obviously not quite so keen on a significant reduction in capital but would accept it.
I have one plan running at the moment, first anniversary will be March 2019 and will mature if the FTSE is 6888 or above. Add what I invest in the current offer I would still have less than 5% of my savings/investments in the products.
I tend to ladder purchases in this product to around every 6 months. However I seem to be currently getting cold feet as to where the FTSE is going
So my question really is what likelihood is there that that FTSE may drop more 40% over the 6 year year term and not recover.
Is this a major part of the risk element of these products or is it the risk of no return.
0
Comments
-
The current offer for 10.25% is due to close. The product is described as a medium risk investment.
SCARPS are normally 100% loss of capital with no FSCS protection is not normally classed as medium risk. You must not use the 1-7 KIID scale for measuring risks on these as they understate risk on SCARPS as they are only looking at one area of risks and not the overall risks. This is one of the reasons why no-one uses the 1-7 KIID scale in real life.So my question really is what likelihood is there that that FTSE may drop more 40% over the 6 year year term and not recover.
Dot.com period fell over 40%. The credit crunch fell over 40%. Whilst no market counterparties failed during the dot.com period, several did during the credit crunch causing significant SCARP failures. Mainly down to Lehman Brothers.
Many more would have failed as both Lloyds TSB and Royal Bank Of Scotland were the market counterparty. However, the Govt didnt let them fail because they were also retail banks. It would let them fail next time around as the retail banks are being ringfenced from the investment banks allowing the investment bank side to fail, if necessary, without the retail bank being brought down with it.
The guide given by the FCA is that no more than 25% of your investible wealth should be in SCARPS and no more than 5% of it should be with any one market counterparty.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 -
My starting point for these products is that the counterparty makes plenty of money from them (enough for the intermediary, i.e. Investec in this case, to take a good cut too).
When you decompose them, effectively you're buying some options at a high price, and/or selling back some different options at a low price. The counterparty will then aggregate these with the general risk in their equity derivatives book, hedge that, and make money wherever the market goes.
Essentially here you're buying the index; giving away the dividends; selling call options (giving up your full upside by capping it at 10.25%); and buying a put option (getting capital protection, but made less valuable by the fact it goes away if the index falls 40% and doesn't recover).
The complexity of the product means that unless you're a pretty sophisticated investor, you'll find it hard to see what its fair value is, and how much above that you're paying. Even simple options are difficult for the retail investor to value - that goes even more so for the barrier options in this product.
The complexity can also mask things like the fact that dividends are excluded from consideration (the index is the FTSE 100, not its Total Return version; I can imagine many investors not noticing that).
Of course, if the market goes the right way, you'll come out with a profit - but that's also true if you invest in simpler products that give you exposure to the same index. In that case you don't have the "capital protection", but you get the full upside of the market, and you can tune how much you invest to how much you're prepared to lose.0
This discussion has been closed.
Categories
- All Categories
- 343.6K Banking & Borrowing
- 250.2K Reduce Debt & Boost Income
- 449.9K Spending & Discounts
- 235.8K Work, Benefits & Business
- 608.8K Mortgages, Homes & Bills
- 173.3K Life & Family
- 248.4K Travel & Transport
- 1.5M Hobbies & Leisure
- 15.9K Discuss & Feedback
- 15.1K Coronavirus Support Boards