Structured product autocalls – one of the UK’s most successful retail investments of the 21st century– are celebrating a new milestone.
Structured products first appeared in the 1990s, but it was not until 2003 that the first autocall version (or kick-out) contract, appeared. It offered 8% for each year it was in force, and it delivered exactly that a year later. The popularity of autocalls has since grown to the point that they are now the most common vehicle in the structured products sector.
Autocalls – celebrating their 20th anniversary – are one of many investments available to investors. They offer predefined returns at predetermined dates, under specific circumstances while protecting the original capital from all but the most extreme situations.
These defined outcome-based investments are market-linked and can be highly tailored but retail autocalls typically have straightforward, easy to understand outcomes.
The UK champion for autocalls is Lowes Financial Management, a leading Independent Financial Advice firm, which believes that autocalls are a reliable investment vehicle which are often overlooked by retail investors and their advisers.
To mark the anniversary milestone, Lowes Financial Management has produced ‘A Consumer’s Guide to Autocalls – A 20-Year Evolution’.
The guide – with a sub-title ‘The UK’s Best Investment Secret’ – provides an independent review of the evolution of the sector and its performance. It highlights the history and features of autocalls to help demystify them and dispel myths.
Ian Lowes, Managing Director of Lowes, said: “Structured product autocalls are a proven, successful solution for investors. While all investment involves risk and all investors should be prepared for that ‘worst-case scenario’, 20 years of historic performance shows autocalls have largely delivered.”
He said, most historically issued autocalls have used the FTSE 100 index as the underlying. Of these, more than 1,600 have matured to date, with eight returning capital only and the rest returning gains. The average annualised return and duration has been 7.7% pa over 2.2 years.
Ian Lowes adds: “With a twenty-year, largely unblemished track record we believe it’s time for some acknowledgement that this might actually be a better way for many to invest, at least for an element of their portfolios.
“Beyond the speculators looking to make a quick return and accepting the risks that go with it, most of us, whether we’re investing for future expenditure, retirement or just building our wealth should be aiming to beat inflation, wherever possible. We believe autocalls could be the way for investors to do this. They certainly have been to date.”
For individuals, autocalls can be held within tax-efficient accounts such as ISAs, SIPPs, or can be held directly without any tax shelter. For investments of £500,000 or more, a customised autocall can be created. To make autocalls accessible to retail investors, plan managers step in to purchase the securities from the counterparty bank and package them into investment offerings with minimum investment thresholds as low as £5,000.
Ian Lowes continued: “More generally, the structured product and autocalls sector continues to evolve and develop. The sector is well regulated, has become a lot less complex, and offers high probability of positive outcomes while providing contingent capital protection against market falls.
“We hope our guide will act as a reference point, an education tool for investors who perhaps haven’t heard or considered autocalls as an investment.”