Posts Tagged ‘growth’

Investment Focus: investment returns even if the FTSE falls 50%

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Last update: 27/09/2016

A defensive plan is simply a plan that is designed to provide an investment return even if the stock market fails to rise, or in some circumstances goes down slightly. They are therefore an option for those who would like the opportunity for investment level returns, but who are not confident the market will rise significantly in the medium term. The main feature of the Defensive Growth Plan from Investec is that returns are achieved even if the market has fallen by as much as 50% at the end of the fixed term. Here we take a closer look at the plan in order to find out why it has proved so popular with our investors.

The FTSE

Apart from a handful of days in 2015 and earlier this year, the closing level of the FTSE has been above 6,000 points since the start of 2013, and we have also seen the highest closing level on record (7,104 points), achieved towards the end of April last year. Whilst the FTSE has remained at what are historically high levels, defensive investment plans that offer the potential for investment level returns even if the stock market fails to rise or, in some scenarios, even falls slightly, have been an increasingly popular choice with our new and existing investors.

Defensive investments – a middle ground

Defensive investments attempt to offer investors the best of both worlds, by balancing less of the investment upside, with the opportunity to achieve these returns even if the market fails to rise. This means they are designed for investors who have a neutral or negative outlook of what could happen to the stock market in the coming years, and yet who would still like the opportunity to receive investment level returns. Based on the levels of the FTSE over the last few years, these arguably offer a compelling investment opportunity and Investec’s Defensive Growth Plan is one of our most popular.

In a nutshell

One of the latest additions to Investec’s highly competitive range of structured investment plans, the FTSE 100 Defensive Growth Plan offers a fixed return of 34% at the end of the six year term, provided the value of the FTSE at that point is equal to or higher than 50% of its value at the start of the plan (subject to averaging). Therefore, the FTSE can fall up to 50% and investors would still receive a 34% growth return, along with a full return of their original capital.

If the Index has fallen by more than 50% at the end of the term, no growth will be achieved and your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

34% return even if the FTSE falls 50%

This is a strong headline since investors will receive a positive return, even if the FTSE falls 50%. This means that even if you are not confident the FTSE will rise at all, you could still receive a fixed return of 34% unless the FTSE falls by more than 50%.

The ‘defensive’ feature

Since the fixed return on offer is dependent on the performance of the FTSE 100 Index, the defensive element of the plan is an important one to understand. Rather than the Index having to finish higher than its value at the start of the plan, the Index can fall up to 50% and the fixed return of 34% is still paid. Whilst the FTSE continues at historically high levels, this ‘defensive’ feature could be an appealing one.

The use of averaging

Whether the plan pays the 34% fixed return is determined by comparing the value of the FTSE 100 Index at the start of the plan with its value at the end of the plan or the ‘Final Index Level’. When calculating the Final Index Level the plan takes the average of the closing levels of the Index on each business day during the last 6 months of the plan term. The use of averaging can reduce the adverse effects of a falling market or sudden market falls whilst it can also reduce the benefits of an increasing market or sudden increases in the market during the last six months of the plan.

Some capital protection from a falling market

Provided the FTSE 100 Index has not fallen by more than 50% at the end of the term, the 34% growth return is paid to you along with a full return of your initial capital. Should the Index have fallen by more than 50%, your initial investment is reduced by 1% for each 1% fall. It is important to note that in this scenario, you would lose at least 50% of your capital.

Since the market can fall up to and including 50% before your initial investment is at risk, the plan offers some capital protection against a falling market. This should be considered in conjunction with the potential return on offer when reviewing the plan’s overall risk versus reward.

Defined risk and defined returns

Another feature of this plan is that, as with all structured investments, the potential returns are stated up front, prior to investing. This allows the investor to consider the potential upside in the context of the amount of risk they are taking, since you know at the outset exactly what needs to happen in order to receive the stated level of growth as well as a return of your initial investment.

ISA only

Please note that this plan is only available as an ISA. The plan also accepts ISA transfers, from both Cash ISAs and Stocks & Shares ISAs.

Credit ratings and agencies

This plan is a structured investment and so your initial capital is used to purchase securities issued by Investec Bank plc. These securities are structured in a way so that they provide the growth and return of capital as described above, which means that Investec Bank plc’s ability to meet their financial obligations becomes an important investment consideration. If the bank fails or becomes insolvent, this could affect both the payment of any growth return as well as the return of your original investment and you would not be covered by the Financial Services Compensation Scheme for default alone.

Fitch is one of the main global credit rating agencies and has rated Investec Bank plc with a credit rating of BBB with a stable outlook (awarded 27th October 2015). The ‘BBB’ rating denotes a good credit quality and indicates that expectations of default risk are currently low and that Investec Bank plc’s capacity for payment of its financial commitments is considered to be adequate but adverse business or economic conditions are more likely to impair this capacity. The stable outlook indicates that the rating is not expected to change in the short to medium term, i.e. in the next 6 months to 2 years.

Investec Bank plc profile

Investec is an international specialist bank and asset manager with its main operations in the UK and South Africa. Established in 1974, they currently employ around 9,000 people and as at 31st March 2016, look after £121.7 billion of customer assets. They provide a range of financial products and services and specialise in a number of areas, particularly within the banking sector. Their banking operation looks after £24.0 billion of customer deposits and they are also a market leading provider of investment plans and structured deposits in the UK.

Fair Investment view

Commenting on the plan, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited, said: “The ability to produce a 34% fixed return even if the market falls by 50% puts this plan in a category of its own, since most other defensive investments still require the FTSE to fall by no more than 20%.The risk versus reward of the plan is known at the outset and is relatively easy to understand, whilst by offering a competitive return even if the FTSE falls by up to half this plan is one of our best selling defensive investments. So for those who are not confident the stock market will continue to rise in the coming years, this plan could make for a compelling opportunity.”

The plan is open for New ISA investments up to the £15,240 allowance for the current tax year (2016/17) as well as Cash ISA and Stocks & Shares ISA transfers. The minimum investment is £3,000.

 

Click here for more information about the Investec FTSE 100 Defensive Growth Plan »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring or switching an ISA.

This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

Top 10 reasons to consider kick out investment plans

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As at the end of last week, the range for the closing levels of the FTSE 100 Index over the previous 52 weeks was between 5537.0 and 6941.2, a difference of 1404.2 points. So whilst the UK’s index of leading blue chip companies remains as volatile as ever, there is one type of investment plan that continues to be a popular choice with our investors. Kick out plans offer a defined return for a defined level of risk, which combined with the opportunity to mature early mean they can offer a compelling opportunity in a wide range of investment climates.

Whilst many investors find it harder to commit when markets are seemingly more unpredictable than normal, or as has happened over the last couple of month has been on a relatively steady upwards trajectory, kick out investments remain popular regardless of what is happening to the stock market. With this in mind, we give you our Top 10 reasons to consider a kick out investment plan.

1.  Defined return, defined risk

With kick out plans the potential returns on offer, as well as what needs to happen to provide these returns, is known up front before you commit your capital – a defined return for a defined level of risk. The investor therefore has the benefit of knowing at the outset the conditions that need to be met in order to provide the stated returns. This allows the investor to consider the potential upside in the context of the amount of risk they are taking, which can then be used to make an informed decision about whether to invest or not.

2.  Early maturity

These plans have a maximum fixed term which is normally six years, but the term ‘kick out’ refers to their ability to mature early depending on the movement of the underlying investment (for example, the FTSE 100 Index). The potential to mature early is usually every 12 months after the start of the plan, with the first opportunity normally occurring at the end of year one or year two. If early maturity does occur, investors receive an attractive level of growth along with a full return of their initial capital. This structure has proved popular in all types of market conditions.

3.  Potential for high returns

In addition to the opportunity for early maturity it is no doubt the potential for high growth returns that also contribute to the ongoing popularity of kick out plans. With most plans offering high single digit or even double digit returns for each year invested (not compounded), the opportunity can be a compelling one, especially since what has to happen to the stock market in order to provide these returns is known at the very outset.

4.  Investment returns even if the market stays relatively flat

Most plans offer the ability to kick out at the end of each year provided the level of the underlying investment at that time is higher than its level at the start of the plan. So if you’re not convinced the markets will rise in the future, and yet still wish to achieve investment level returns, this can be a compelling investment story and is perhaps why this type of investment has proved particularly popular while the FTSE remains at what are historically high levels.

Click here to compare kick out investment plans »

5.  Potential to beat the market

Should a kick out plan be designed to mature early provided the level of the FTSE 100 Index (or other underlying investment) at the end of each year is higher than its value at the start of the plan, then provided the Index has gone up, even if this is by a small amount, you will receive the headline return along with a full repayment of your initial capital. In the scenario where the stock market has only risen by a very small amount, then it is likely that this type of investment would have outperformed the market. This may appeal to those investors who are not confident the market will rise significantly in the coming years, which seems to be a more popular sentiment when markets are at historically high levels.

6.  FTSE linked

Many kick out investment plans are linked to the performance of the FTSE 100 Index, which is widely recognised as the proxy benchmark for most investment managers in the UK. Since the historical volatility of this Index is familiar to many investors, they are in a better position to consider the pros and cons of the plan within the context of the underlying investment and the associated risks involved.

7.  Investment returns even if the market falls slightly

There are also kick out plans that will provide competitive growth returns even if the underlying investment falls slightly, for example up to 10% or 20%. These so called ‘defensive’ kick out plans thereby cater for an even wider range of investor views in terms of what could happen to the stock market in the coming years – the current range of defensive plans offering the potential for high growth returns even if the FTSE falls up to 20%. Again, whilst the FTSE has remained at historically high levels, this has proved to be a popular feature.

Click here to compare defensive kick out investment plans »

8.  Some capital protection from a falling market

Your original capital is returned if the plan kicks out but should this fail to occur, and no growth is achieved, typically your capital will be returned provided the underlying investment has not fallen below a certain amount. This amount is normally a percentage of its value at the start of the plan, usually in the region of 40% or 50%. To put this into context, for a plan which offers a return of capital unless the FTSE falls by more than 50%, then based on last Friday’s closing value of 6838.10, the Index would have to fall to a closing level of 3419.05 before your capital would be at risk, a level not seen since early 2003. However, if it does fall below 50% you could lose some or all of your initial capital. Please also remember that past performance is not a guide to future performance.

9.  No annual management charges

Unlike investment funds, the charges for creating and managing kick out plans are already taken into account so there are no annual management charges which come out of the headline return. The costs associated with the management of funds happens each and every year (in both actively managed and tracker funds), which may help to explain the number of funds which fail to outperform the FTSE 100 Index or other benchmark, especially over a five or six year period. This ongoing cost is not a feature of kick out plans. Most kick out investments will though have an initial charge, normally up to a maximum of 3%.

10. A disciplined approach

Finally, the mechanics of these investments removes the need for the investor to worry about when to come out of the market since the decision is made for them by the pre-determined market conditions required for the plan to mature or it simply comes to the end of the plan term. Should the plan mature, the investor then has the opportunity to reassess their options based on the market conditions at that time.

ISA friendly

All of the kick out plans offered through Fair Investment Company are available to individuals as a New ISA up to the current limit of £15,240 (2016/17 tax year) and will also accept transfers from both Cash ISAs and Stocks & Shares ISAs (as well as non-ISA investments). Since these investments are normally offered for a limited period, always note any New ISA or ISA transfer application deadlines.

Understand counterparty risk

One of the main differences with structured investment plans when compared with other types of investments, such as funds or investment trusts, is that your capital is used to purchase securities and it is these securities which are designed to produce the stated returns on offer. These securities are normally issued by a bank which means that your investment is held with a single institution rather than split between a number of companies, as it would be within an investment fund. This means the risk of the bank becoming insolvent and therefore unable to repay your original investment along with any stated returns becomes a factor to consider – this is known as counterparty risk. Since the counterparty is usually a bank, the credit rating is normally available so a view can be taken on the potential risk involved. There are also plans which aim to reduce this counterparty risk by spreading it across a number of institutions.

Latest selections

Kick out investment plans offer the potential for high returns balanced with conditional capital protection, with our latest selections offering a wide range of counterparties, collateralised versions as well as ‘defensive’ plans giving investors plenty of choice. We also have a number of kick out investments for our existing customers and those more experienced investors where you will find a range of dual Index plans which offer a higher risk versus reward, with current headline returns of up to 14% after 12 months.

 

Click here for our latest kick out investment plans »

Click here for our latest defensive kick out investments »

Click here for our experienced investor section »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

Kick out investment plans are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

Investment Focus: Investec Enhanced Kick Out Plan

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Last updated: 16/08/2016

A kick out investment is a fixed term investment plan that has the ability to mature early or ‘kick out’ each year, providing a fixed growth return along with a full repayment of your initial capital. Since these plans can produce competitive returns even if the market stays relatively flat, these investments seem to be popular in a wide range of market conditions. The current issue of the Enhanced Kick Out Plan from Investec offers the highest rate of any kick out investment based on the performance of the FTSE 100 Index, which perhaps helps to explain why it is one of our most popular investments with both our existing customers as well as new investors.

Here we take a closer look at the main features of the plan and review the risk versus reward on offer to see how this might make for an attractive opportunity in the current investment climate.

In a nutshell

The plan will return 9.50% per year (not compounded) provided the value of the FTSE 100 Index at the end of each year is higher than its value at the start of the plan – so although the FTSE does have to rise, this only needs to be by a single point. Should the plan kick out, your initial investment is also returned in full. If the plan does not kick out, your initial capital is at risk if the Index falls by more than 50% during the term, and also finishes below its starting value, in which case your capital will be reduced by 1% for each 1% fall.

Early maturity

The term ‘kick out’ refers to the ability of the investment plan to mature early depending on the performance of the FTSE 100 Index. Plans such as these that have the ability to mature early and provide a competitive level of growth have proved popular in recent years with a range of investors. For example, the fact that this plan can achieve investment level returns even if the market stays relatively flat means that investors have the potential to outperform the market. This scenario may appeal to those who are not confident the market will rise strongly in the coming years.

The potential for high returns

In addition to the opportunity for early maturity it is no doubt the potential for double digit returns that have added to this plan’s popularity. The headline return on offer from the current issue is 9.50% annual growth. The return is not compounded, but will be paid to you for each year the investment has been in place, thereby offering compelling returns even if the FTSE stays relatively flat or only rises by a small amount. If the plan does kick out, your initial capital is also returned to you in full along with the growth payment.

Some capital protection from a falling market

The Enhanced Kick Out Plan also includes what is known as conditional capital protection, which means that if the plan fails to kick out by the end of the six year term, the return of your initial investment is conditional on the FTSE not falling by more than 50% of its starting value. If the FTSE stays within this 50% barrier throughout your investment then you will receive a full return of your original investment.

If the Index falls more than 50%, and also ends the term at a level which is lower than its value at the start of the plan, your initial investment will be reduced by 1% for every 1% fall. In this situation there is a risk that you could lose some or all of your capital.

Defined risk and defined returns

Another feature of this investment is that the potential returns are stated up front, prior to investing. This allows the investor to consider the potential upside in the context of the amount of risk they are taking, since you know at the outset exactly what needs to happen in order to achieve the growth returns on offer, as well as a return of your initial investment.

Risk versus reward

The principle of risk versus reward inevitably leads to putting your capital at risk in the search for potentially higher returns. A good benchmark for assessing any investment is to compare what you could get from a fixed rate deposit over a similar timeframe, and then consider whether you are comfortable with the additional risk you are taking in order to receive the potential for a higher return.

Leading longer term fixed rates are currently offering around 2.20% and so by accepting risk to your capital, you are potentially increasing your returns by around 7.30% a year if the plan matures early or produces a return in the final year. The decision is therefore whether you are comfortable with putting your capital at risk and the conditional capital protection offered, in order to have the potential for this level of growth.

Credit ratings and agencies

Another important feature of this plan is that your investment is used to purchase securities issued by Investec Bank plc and which are designed to produce the stated returns on offer based on the performance of the FTSE. This means that Investec’s ability to meet their financial obligations becomes an important consideration. Fitch is one of main global credit rating agencies and Investec Bank plc has a credit rating of BBB with a stable outlook (awarded 27th October 2015).

The ‘BBB’ rating denotes a good credit quality and indicates that expectations of default risk are currently low, although adverse business or economic conditions are more likely to impact than a bank with a higher rating. The stable outlook indicates that the rating is not likely to change in the short to medium term, i.e. in the next 6 months to 2 years.

Investec Bank plc

Investec is an international specialist bank and asset manager with its main operations in the UK and South Africa. Established in 1974, they have approximately 8,500 employees and provide a diverse range of financial products and services, specialising in a number of areas particularly within the banking sector. They are also a market leading provider of investment plans and structured deposits.

ISA friendly

In addition to non-ISA investments, this investment has been one of our most popular with ISA investors and is available as a New ISA up to the current limit of £15,240 (2016/17 tax year), and also accepts transfers from both Cash ISAs and Stocks & Shares ISAs. Please check the plan details for any application or transfer deadlines that apply. The minimum investment is £3,000.

Fair Investment conclusion

Commenting on the plan, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited, said: “One of the main reasons investors consider kick out investments is that they can offer the potential for high growth and a full return of capital in as little as 12 months, even if the stock market stays relatively flat or only rises by a small amount. In both of these scenarios, this type of investment offers the potential to beat the market.”

He continued: “Investec’s plan is our most popular kick out investment, offering the potential to kick out at the end of each year and achieve 10.0% growth for each year invested. So depending on your view of what will happen to the FTSE in the coming years, the potential for double digit growth along with a full return of capital, could be considered a good return on your investment in the current climate.”

Click here for more information about the Investec Enhanced Kick Out Plan »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek professional advice.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

Our 10 best last minute ISA ideas

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With just one week to go until the deadline for using your 2015/16 ISA allowance of £15,240, this really is your last opportunity to make use of this valuable tax break and help protect your returns from the taxman. If you are yet to make use of some or all of your allowance, here we give you our 10 best last minute ISA ideas. Including both Cash ISA and Investment ISAs, as well as opportunities where you can include your 2016/17 ISA allowance (£15,240) as well, there should be something for everyone.

1.   Our best-selling Investment ISA

For those looking for growth but also with the opportunity to mature early or ‘kick out’ each year, the Enhanced Kick Out Plan offers 11.50% for each year invested provided the FTSE 100 Index at the end of each year is higher than its value at the start of the plan (subject to averaging). Capital is at risk if the FTSE falls by more than 50%. This is our best selling Investment ISA during the current ISA season and also features a Double ISA option.  Click here for more information »

2.   Fixed income Investment ISA

The Enhanced Income Plan is a regular ISA season top seller, paying a fixed income of 5.28% per year regardless of what happens to the stock market. The plan also has monthly income payments, so you know exactly how much you will paid, when, and for how long. Capital is at risk if the FTSE 100 Index falls by more than 50%. This plan features a Double ISA option.  Click here for more information »

3.   Self-select Investment ISA top seller

Barclays Stockbrokers has been voted ‘Best Execution-Only Broker’ at the Shares Awards 2015 whilst they have also been voted Self Select ISA Provider of the Year 2016 at the ADVFN International Financial Awards. Their investment ISA offers over 2,000 funds as well as a wide range of other investments including shares, exchange traded funds, investment trust, gilts and bonds.  Click here for more information »

4.   Defensive Investment ISA best seller

The Defensive Growth Plan from Investec offers a fixed return of 36% (equivalent to 5.25% compound annual growth) plus a return of your original capital, provided the FTSE 100 Index has not fallen by 50% or more at the end of the investment term. If it has, no growth will be achieved and your capital will be reduced by 1% for each 1% fall. This plan also features a Double ISA option.  Click here for more information »

5.   Income Investment ISA top seller

The FTSE Quarterly Contingent Income Plan pays a quarterly income of 1.875% for each quarter the FTSE 100 Index does not end less than 25% below its value at the start of the plan. So even if the FTSE falls up to 25% each quarter, you would still achieve 7.50% annual income. Capital is at risk if the FTSE has fallen by more than 40% at the end of the investment term. This plan features a Double ISA option.  Click here for more information »

6.   Managed and regular saver Investment ISA

The Standard Life Stocks & Shares ISA includes their ‘Easy Option ISA’, which allows investors to invest in one of their MyFolio Managed Funds run by a team of experts at Standard Life Investment Ltd. You can manage your account online and your ISA can be opened from just £50 per month with transfers from other ISAs permitted.  Click here for more information »

7.   Defensive supertracker Investment ISA

Defensive plans remain popular and the FTSE Defensive Supertracker from Meteor tracks any growth in the FTSE during the plan term and then trebles it, subject to a maximum growth return of 60%. The plan is defensive since the growth is based on any rise above 80% of the FTSE’s value at the start of the plan – that’s a 60% return even if the FTSE ends the same. Capital is at risk if the FTSE has fallen by more than 40%. This plan also features a Double ISA option.  Click here for more information »

8.   Instant access Cash ISA

For savers looking to combine a top interest rate with access to their money at all times, the Easy Access ISA from AA offers a simple, bonus-free savings rate of 1.25% AER variable. The account can be opened and managed online with just £100 and there are unlimited free withdrawals. The account also accepts transfers in. There are no penalties, notice periods or tiered interest rates, whilst interest is calculated daily and paid in March each year.  Click here for more information »

9.   Fixed rate Cash ISA

If you are looking for the reassurance of a fixed savings rate and don’t need access for your money for at least a year, fixed rate Cash ISAs are a popular option. The 1 Year Fixed Rate Cash ISA from AA currently offers 1.35% AER fixed and can be opened with a single deposit of £500. The account also accepts transfers in. Withdrawals are not permitted and 90 days loss of interest will apply if you access your money during the fixed term. You can apply and manage your account online whilst interest is calculated daily and paid at the end of your 12 month fixed rate period.  Click here for more information »

10.  Help to Buy Cash ISA

First time buyers can benefit from a 25% bonus of their Help to Buy ISA balance with a minimum bonus of £400 (so you need at least £1,600 saved) and a maximum of £3,000 (on a savings balance of £12,000) although you can have more saved. That means for every £200 you save HM Government will add £50, up to a maximum of £3,000. Eligibility criteria and Help to Buy: ISA Scheme Rules apply. Also note that any funds withdrawn before closing the account will not count towards the Government Bonus. The Nationwide Help to Buy: ISA is currently offering 2.00% AER variable with a minimum opening balance of £1.  Click here for more information »

 

Click here to compare Cash ISAs »

Click here to compare Investment ISAs »

Click here to compare our Top 10 Investment ISA plans »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. Fair Investment Company does not offer advice and any investment transacted through us in on a non-advised basis. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. The past performance of the FTSE 100 Index is not a guide to its future performance.

Some of the investments mentioned are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. ISA transfer charges may apply, please check with your provider.

2016 ISA season selections – our Top 5 Investment ISAs

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With well under a month to go, time is running out to maximise the valuable tax benefit of your ISA allowance before the deadline on 5th April 2016, otherwise it will be lost forever. This has already been a very busy ISA season, and with Cash ISA savings rates continuing at uninspiring levels, it is perhaps not surprising that last season’s rise in the number of Stocks & Shares ISAs is a continuing trend. With the need to review existing ISAs, as well as making sure any new ISA investments offer the opportunity for competitive returns, we bring you our most popular Investment ISAs.

Our Top 5 Selections

Below we have listed some of our most popular Investment ISA plans, featuring both income and growth investments. With income needs continuing to play a critical role for many investors, the attraction of having tax free income is understandable. Whilst for investors looking for growth, included are those plans which take a defensive view on the stock market, as well as investments with the opportunity to mature early or ‘kick out’. Our head of savings and investment, Oliver Roylance-Smith, also offers a Fair Investment view for each plan.

Your ISA allowance

The ISA allowance for the current tax year is £15,240, whilst all of the plans detailed below accept Cash ISA and Stocks & Shares ISA transfers. Each plan also offers a Double ISA option, whereby you can invest the current tax year ISA allowance and next tax year’s ISA allowance (2016/17 tax year ISA allowance is also £15,240) via one application form – thereby offering the opportunity to invest up to £30,480 into new ISAs. Please check the individual plan for further details and for any application deadlines that apply.

Potential for 11.50% annual growth

With the potential for double digit returns and the opportunity to mature early from year one onwards, the Investec Enhanced Kick Out Plan has been our best selling Investment ISA this year. The plan will return 11.50% annual growth (not compounded) provided the value of the FTSE 100 Index at the end of each year is higher than its value at the start of the plan (subject to averaging). Your initial capital is at risk if the Index falls by more than 50% during the term, and also finishes below its starting value, in which case your capital will be reduced by 1% for each 1% fall.

Fair Investment view: “Depending on your view of what will happen to the FTSE, the ability to achieve 11.50% annual growth, even if the Index stays relatively flat, perhaps helps to explain why this plan has proved so popular. The current issue also sees the highest potential return on offer from this plan since 2012, so if the combination of high growth returns, the ability to mature early, as well as some capital protection against a falling market sounds appealing, this might make for a compelling opportunity in the current investment climate.”

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Up to 7.50% annual income

The FTSE Quarterly Contingent Income Plan from Focus offers a quarterly payment of 1.75% during the plan if at the end of each quarter, the value of the FTSE 100 index has not fallen more than 25% from its value at the start of the plan. Therefore, the Index can fall up to 25% at the end of each quarter and you would still receive 7.50% annual income, but if the Index falls by more than this, no income would be paid for that quarter.

Your initial investment is returned at the end of the plan provided the FTSE has not fallen by more than 40%, measured at the end of the fixed term only. If it has fallen below this level, capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Fair Investment view: “Those seeking income from their investments often put the potential yield and frequency of payments as their top priorities, so the headline yield of up to 7.50% is attractive and the cap on any income is balanced against the conditional capital protection thereby offering an attractive balance of risk v reward. It’s has been a while since we’ve been able to talk about the potential for up to 7.50% income from a plan based on the performance of the FTSE, and compared to other income alternatives available in the market, this plan could offer an attractive option.”

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5.28% fixed income each year

Our next plan is from Investec and is our best selling income investment this year, for both ISA and non-ISA investors. The current issue of the Enhanced Income Plan pays a fixed income of 5.28% per year, with monthly payments of 0.44% paid to you regardless of the performance of FTSE.  Capital is at risk if the FTSE falls by more than 50% during the investment term. If it does, and the Index also finishes below its starting level then your original capital will be reduced by 1% for each 1% fall, so you could lose some or all of your original investment.

Fair Investment view:One of the attractions of an ISA is that it allows income to be generated that would otherwise be subject to income tax, whilst the Enhanced Income Plan offers a high fixed income that is paid to you regardless of the performance of the stock market. Knowing exactly how much you will be paid, when and for how long are clearly features that could appeal, whilst the monthly payment frequency is usually the most sought after. The combination of a regular fixed income and a return of capital unless the FTSE 100 Index falls by more than 50%, could offer a competitive balance of risk versus reward that might be considered by both savers and investors.”

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36% return even if the FTSE falls up to 50%

Defensive plans offer investors a competitive return on their capital even if the stock market fails to go up. As a result, they have risen in popularity in the last few years and the recently launched Defensive Growth Plan from Investec is no exception. The plan offers a fixed return of 36%, provided the FTSE 100 Index at the end of the term, is more than half of its value at the start of the plan (subject to averaging). So the FTSE can fall up to 50% and you still receive a fixed growth return of 36%, equivalent to 5.25% compound annual growth. If the FTSE falls by 50% or more, no growth will be achieved and your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Fair Investment view: “Whilst the FTSE continues at what are still historically high levels, it is understandable why many investors are considering defensive investment plans and with a product headline of a 36% growth return unless the FTSE 100 Index falls by 50% or more, the risk versus reward of this plan is relatively easy to understand. So depending on your view of what might happen to the FTSE in the medium term, the ability to produce over 5% compound annual growth provided the market does not fall 50%, could make for an innovative investment opportunity.”

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Triple the rise in the FTSE above 80% of its starting value

Following this defensive theme is our most popular ‘supertracker’ plan, the FTSE Defensive Supertracker from Meteor. The ‘supertracker’ part means your investment tracks any growth in the FTSE 100 Index during the term of the plan and then triples it, whilst the plan is ‘defensive’ since this growth is based on any rise above 80% of the FTSE’s starting value. Therefore, provided the FTSE has not fallen by more than 20%, you will receive triple any growth, subject to a maximum return of 60%. Therefore, this maximum return is achieved provided the FTSE ends the same or higher than its value at the start of the plan.

If the FTSE has fallen by more than 20%, no growth will be paid and your original investment will be returned in full unless the FTSE has fallen by more than 40%. If it has, your capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Fair Investment view: “For those investors concerned about the historically high level of the FTSE and would therefore like to include a defensive element to their investment, this plan offers the opportunity for investment level returns not only if the FTSE goes up, but also if it stays flat or even goes falls up to 20%. By combining this with some capital protection should the stock market fall, this plan could offer a compelling balance of risk versus reward for those who are not confident that the FTSE will rise significantly in the medium term.”

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Important reminder – why do an ISA?

One of the main reasons for using an ISA is it’s tax treatment since no tax is payable on the income you receive, or any capital gains that you make, and there is also no need to declare any ISA income or capital gains on your tax return. They therefore provide tax efficient income or growth on your investment, the benefit of which can be compounded over time. See our Top 10 Tips for ISA season for further help and tips on how to make the most from this important time of year. Please also note that with all of these investments, our experienced Investment Customer Services team is available on 0845 308 2525 to answer any questions you may have.

How to apply

When you click for more information on any of the above plans you will be able to request a brochure pack which will be sent to you by post and email. This will include everything you need to invest, whether applying for an ISA, transferring existing Cash ISAs and/or Stocks & Shares ISAs or making on-ISA investments. Also note that these plans have different application deadlines, and may also close early so it is important to submit your application as soon as possible. Minimum investments and arrangement fees also apply.

Click here to compare Investment ISAs »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

These are structured investment plans which are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

Investment Focus: Investec Defensive Growth Plan

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Defensive investment plans have grown in popularity as they offer investors who are not confident the markets will rise further the opportunity to produce a competitive return on their capital. But the start of the New Year has brought with it increased volatility in the market and it is against this backdrop that we review Investec’s FTSE 100 Defensive Growth Plan. So how does this latest addition to their range of fixed term defensive investment plans stack up?

FTSE levels

Apart from a few days during the summer and mid-December last year, the FTSE 100 Index had closed above 6,000 points on every day between 2013 and 2015. The lowest level was on 24th August 2015 when the Index closed at 5,898 points whilst the highest closing level over this period was 7104 towards the end of April last year. This level also represents the highest closing level of the FTSE on record, having broken through the 7,000 point barrier for the first time ever last March.

2016 and beyond

Whilst the FTSE has remained at what are historically high levels, defensive investment plans that offer the potential for investment level returns even if the stock market fails to rise or, in some scenarios, even falls slightly, have been an increasingly popular choice with our new and existing investors. However, the start of the New Year has already brought with it a rather different investment landscape. The FTSE opened 2016 at 6242.3 and yet closed last night at 5779.9, a drop of 462.4 points which is equivalent to a 7.4% fall in value. By any standards this is a sizeable reduction.

Please note that past performance of the FTSE 100 Index is not a guide to its future performance.

So what might this mean to us as investors and where do think the FTSE might go in the medium term? Well, if you have doubts that it will continue to reach the 7,000 point mark again in the coming years, or indeed surge pass this level, then this latest new launch from Investec might just be worth a closer look.

In a nutshell

The FTSE 100 Defensive Growth Plan aims to provide a fixed return of 36% at the end of the six year term and will do so provided the value of the FTSE at that point is higher than 50% of its value at the start of the plan (subject to averaging). Therefore, the FTSE can fall up to 50% and investors would still receive a 36% growth return, along with a full return of their original capital.

If the Index has fallen by 50% or more at the end of the term, no growth will be achieved and your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

36% return even if the FTSE falls up to 50%

This is a strong headline since investors will receive a positive return, even if the FTSE falls up to 50%. This means that even if you are not confident the FTSE will rise at all, you could still receive a fixed return of 36% unless the FTSE falls by 50% or more. The 36% return is equivalent to 5.25% compound annual growth.

‘Defensive’ feature

Since the fixed return on offer is dependent on the performance of the FTSE 100 Index, the defensive element of the plan is an important one to understand. Rather than the Index having to finish higher than its value at the start of the plan, the Index can fall up to 50% and the fixed return of 36% is still paid. Whilst the FTSE continues to remain at what are historically relatively high levels, this ‘defensive’ feature could be an appealing one.

The use of averaging

Whether the plan pays the 36% fixed return is determined by comparing the value of the FTSE 100 Index at the start of the plan (the closing level on 1st March 2016), with its value at the end of the plan or the ‘Final Index Level’. When calculating the Final Index Level the plan takes the average of the closing levels of the Index on each business day during the last 6 months of the plan term. The use of averaging can reduce the adverse effects of a falling market or sudden market falls whilst it can also reduce the benefits of an increasing market or sudden increases in the market during the last six months of the plan.

Some capital protection from a falling market

Provided the FTSE 100 Index has not fallen by 50% or more at the end of the term, the 36% growth return is paid to you along with a full return of your initial investment. Should the Index have fallen by 50% or more your initial investment is reduced by 1% for each 1% fall. In this case you would lose at least 50% of your capital.

Since the market can fall up to 50% before your initial investment is at risk, the plan offers some capital protection against a falling market. This should be considered in conjunction with the potential return on offer when reviewing the plan’s overall risk versus reward.

Defined risk and defined returns

One of the features of this plan is that the potential returns are stated up front, prior to investing. This allows the investor to consider the potential upside in the context of the amount of risk they are taking since you know at the outset exactly what needs to happen in order to receive the stated level of growth as well as a return of your initial investment.

ISA only

Please note that the first issue of this new plan is only available as an ISA. The plan also accepts ISA transfers, from both Cash ISAs and Stocks & Shares ISAs.

Credit ratings and agencies

This plan is a structured investment so your initial capital is used to purchase securities issued by Investec Bank plc. These securities are structured in a way so that they provide the growth and return of capital as described and also means that Investec Bank’s ability to meet their financial obligations becomes an important investment consideration. If the bank fails or becomes insolvent, this could affect both the payment of any growth return as well as the return of your original investment and you would not be covered by the Financial Services Compensation Scheme for default alone.

Fitch is one of the main global credit rating agencies and as at 27th October 2015, Investec Bank plc has a credit rating of BBB with a stable outlook. The ‘BBB’ rating denotes a good credit quality with low expectations of default risk. The stable outlook indicates that the rating is not expected to change in the short to medium term, i.e. in the next 6 months to 2 years.

Investec Bank plc profile

Investec is an international specialist bank and asset manager with its main operations in the UK and South Africa. Established in 1974, they currently employ around 8,200 people and as at April 2015, look after £124.1 billion of customer assets. They provide a range of financial products and services and specialise in a number of areas, particularly within the banking sector. Their UK banking operation, Investec Bank plc, looks after £10.3 billion of customer deposits. They are also a market leading provider of investment plans and structured deposits.

Fair Investment view

Commenting on the plan, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited, said: “With a product headline of a 36% growth return unless the FTSE 100 Index falls by 50% or more, the risk versus reward of this plan is relatively easy to understand. Whilst the FTSE continues at what are historically high levels it is understandable why many investors are considering defensive investment plans, and so depending on your view of what will happen to the Index in the medium term, the ability to produce over 5% compound annual growth provided the market does not fall 50% could be a compelling one.”

The plan is open for New ISA investments up to the £15,240 allowance for the current tax year (2015/16) as well as Cash ISA and Stocks & Shares ISA transfers. The minimum investment is £3,000.

Click here for more information about the Investec FTSE 100 Defensive Growth Plan »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring or switching an ISA.

This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

Defensive investment plans revealed – what you need to know

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Defensive plans offer the potential for investment level returns even if the stock market fails to rise, or, in some scenarios, even falls slightly. With the closing levels of the FTSE 100 Index (‘the FTSE’) remaining above 6,000 points for almost the entire period since the start of 2013, defensive plans have risen in popularity as investors who are not confident the markets will rise further still have the opportunity to produce a competitive return on their capital. With this in mind, we take a closer look at a selection of our defensive plans to find out exactly what they have to offer and how the risk versus reward might be appealing in the current investment climate.

FTSE levels

Apart from a handful of days during August and September of this year, the FTSE has closed above 6,000 points since the start of 2013. The lowest level was on 24th August this year when the Index closed at 5,898 points whilst the highest closing level over this period was 7104 towards the end of April this year. This level also represents the highest closing level of the FTSE on record, having broken through the 7,000 point barrier for the first time only in March earlier this year.

What is a defensive plan?

Therefore, by historical standards, the FTSE has spent close to three years at what are historically high levels. Partly as a result of this, there has been an increase in the number of plans that offer the potential for investment returns, even if the event that the market fails to rise. Collectively, these are commonly known as defensive plans.

Different types

Although each plan has its own characteristics, collectively they are growth investments which offer the potential for either a fixed return for every year invested (not compounded), or a multiple in any rise in the underlying investment but starting from a lower initial level (normally with a cap on the maximum growth return on offer).  Each of these investments will be structured to offer a defined return for a defined level of risk, and as such you will know from the outset exactly what must happen in order to receive the stated returns on offer.

A middle ground

Defensive investments therefore try and offer the best of both worlds by offering the potential for investment level returns, even if the underlying investment only rises by a small amount, stays flat, or with some plans even goes down slightly. This means they are designed for investors who have a neutral or negative outlook of what could happen to the stock market in the coming years, and yet who would still like the opportunity to receive the potential for investment level returns. With the FTSE at historically high levels, these could arguably offer a compelling investment opportunity.

Please note that past performance of the FTSE 100 Index is not a guide to its future performance.

Potential for enhanced returns – the defensive ‘supertracker’

The FTSE Defensive Supertracker from Meteor is a current example of the defensive supertracker. The ‘supertracker’ part means your investment tracks any growth in the FTSE 100 Index during the term of the plan and then triples it, whilst the plan is ‘defensive’ since this growth is based on any rise above 80% of the FTSE’s starting value.  Therefore, provided the FTSE has not fallen by more than 20%, you will receive triple any growth, subject to a maximum return of 60%, plus your capital back (that’s a 60% return even if the FTSE ends the same).

If the FTSE has fallen by more than 20%, no growth will be paid and your original investment will be returned in full unless the FTSE has fallen by more than 40%. This investment could therefore offer a compelling risk versus reward for those who are not convinced the FTSE will rise significantly in the medium term. However, if the FTSE has fallen by more than 40%, your capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Benefit from early maturity – the defensive kick out

If the FTSE had fallen by 5% in 3 years time and yet you still received 24% growth plus a return of your initial capital, would you consider this a good investment? Our range of defensive kick out plans offer up to 8.0% for each year invested (not compounded), even if the market falls up to 10%. The plans also offer the opportunity to mature early or kick out, as early as year 2 onwards, with different FTSE levels required depending on the individual plan.

The Investec FTSE 100 Defensive Kick-Out Plan will return 8.0% for each year plus a return of your capital provided the level of the FTSE at the end of each year from year 3 onwards, is above 90% of its starting value at the start of the plan. Meteors’ FTSE Defensive Kick Out Plan offers a marginally lower return of 7.75% in the event of kicking out but can mature at the end of year 2 onwards.

If with these plans the FTSE falls below the required level for each year, no growth will be achieved and you initial investment is returned in full unless the Index has fallen by either 40% or 50% (depending on the plan), measured at the end of the plan term. If it has, your capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.

The potential for higher returns

Finally, the potential for higher returns is available if investors are prepared to take a higher level of risk, by having their return dependent on a small number of shares rather than an Index as a whole.  Mariana’s 3 Stock Defensive Consolation Plan offers the potential for 14.5% annual returns, as well as the opportunity to mature early, or ‘kick out’, after 12 months, and then after every six months thereafter.

The plan compares the value of three technology shares (Apple, Microsoft and Intel) at the start of the plan with their values at the end of the first year, and then each six months thereafter. If the values of all three shares are at or above their starting values your investment will end, returning your original capital plus 7.25% for each six months invested (not compounded). If one or more shares are below, the plan continues.

If the plan reaches the end of the six year term without kicking out, it also offers the opportunity for a ‘consolation’ return of 32% provided none of the shares has fallen by more than 50%. If one or more shares have fallen by more than 50% then no return will be paid and your initial capital will be reduced by 1% for each 1% fall of the lowest performing share, so you could lose some or all of your initial investment.

Fair Investment view

Commenting on the plans, Oliver Roylance-Smith, head of savings and investments at Fair Investment Company said: “Whilst markets remain at relatively high levels there is understandably a place for defensive investment plans. For those investors who are not confident that the market will rise by a healthy margin in the coming years, knowing that you can achieve 7%+ for each year invested regardless of whether the market goes up, remains flat, or even falls slightly, could be an interesting option.”

He continued: “Combining a competitive growth return with a full return of your initial capital unless the underlying investment falls by 40% or 50% also offers investors a defined return for a defined level of risk. This gives investors the ability to consider the risk versus reward of the plan prior to investing which could be appealing in light of the current investment climate.”

More information on the Meteor FTSE Defensive Supertracker Plan »

More information on the Investec FTSE 100 Defensive Kick Out Plan »

More information on the Meteor FTSE Defensive Kick Out Plan »

More information on the Mariana 3 Stock Defensive Consolation Kick Out Plan »

Click here to compare defensive investment plans »


No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

These are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone.  There is a risk of losing some or all of your initial investment due to the performance of the FSTE 100 Index or three shares listed on the NASDAQ Index. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index or any shares listed on the NASDAQ is not a guide to their future performance. As share prices can move by a wide margin plans based on the performance of shares represent a higher risk investment than those based on indices as a whole.

Investment Focus: Mariana 3 Stock Defensive Consolation Kick Out Plan

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With the potential for a high headline growth return, the latest version of this popular plan from Mariana offers those investors with a higher risk appetite, the potential for greater reward. In addition, this innovative investment plan combines the ability to mature early or ‘kick out’, along with the opportunity for a ‘consolation’ fixed return if the plan fails to mature. Here we take a closer look at the plan’s main features in order to better understand the risk versus reward on offer.

Plan snapshot

The 3 Stock Defensive Consolation Kick Out Plan has a maximum term of six years but offers the opportunity to mature early, or ‘kick out’, after just 12 months, and then at the end of each six months thereafter, dependent on the performance of three technology shares. If the plan kicks out, you will receive 14.50% at the end of year one, or 14.50% plus an additional 7.25% for each six months thereafter (not compounded). If the plan fails to kick out, there is also the opportunity for a ‘consolation’ return of 32% at the end of the fixed term, whilst the return of your capital is also dependent on the performance of the same three shares with your capital being at risk if any of them has fallen by more 50% at the end of the term, in which case you could lose some or all of your initial investment.

‘3 Stock’

Both the investment growth and the return of your initial capital are dependent on the performance of 3 shares. The three shares are well known technology businesses Apple Inc, Microsoft Corp and Intel Corp, all of which are listed on the NASDAQ stock exchange, the second largest stock exchange in the world. The closing levels of the shares are taken at the start of the plan and are then measured at regular intervals thereafter, known as kick out observation dates.

‘Kick Out’

The term ‘kick out’ refers to the ability of the plan to mature early, before the end of the maximum fixed term, or at the end of the plan, i.e. on any of the kick out observation dates, the first occurring after 12 months, and then every six months thereafter. On any such date, should all three shares be at or above the required level, the plan will kick out. If one or more of the shares end below the required level, the plan continues to the next observation date.

‘Defensive’

In determining whether the plan will kick out or not, the value of each share is taken at each kick out observation date and then compared with its value at the start of the plan. Should the value of all three shares be at or above 90% of their value at the start of the plan, your investment will kick out providing a 14.50% return at the end of year one, or 14.50% plus 7.25% for each additional six months invested thereafter (not compounded). This growth payment is made along with a return of your initial investment. The ‘defensive’ element to the plan refers to each share being able to fall up to 10% and the plan will still provide the investment return.

‘Consolation’ return

If the investment fails to kick out either during the plan or at the end of the fixed term, there is also the opportunity to receive a 32% fixed return, along with a return of your initial investment. This ‘consolation’ return is paid provided none of the shares has fallen by more than 50%, i.e. all three shares must end at or above 50% of their value at the start of the plan. If one or more shares have fallen by more than 50%, your capital is at risk.

Some capital protection from falling share prices

If the plan fails to kick out the return of your initial capital is also dependent on the same three shares. On the final day of your investment, should the value of the lowest performing share be less than 50% of its value at the start of the plan, your initial capital will be reduced by 1% for each 1% fall. If should be noted that in this situation, you would lose at least 50% of your initial capital, so although the 50% barrier provides some capital protection from falling share prices, there is the risk that you could lose some or all of your initial capital.

Higher risk

Therefore, the most important feature of this investment plan to consider is that the potential returns on offer, as well as what happens to your initial investment, are both dependent on the performance of shares rather than any stock market index. This makes it a higher risk investment as your growth return is dependent on the performance of individual shares rather than a broader exposure to the stock market as a whole offered by an index (such as the NASDAQ). In addition, this plan focuses on shares within the technology sector which can be volatile. These two factors should be carefully considered.

Greater rewards

The principle of risk versus reward means that the upside of taking on more risk is that the potential rewards are greater, which is indeed the case with this investment. The headline returns are high compared to those on offer from other kick out investments based on the performance of stock market indices. This investment therefore offers the potential for greater rewards than would be on offer if the plan was dependent on the performance of the NASDAQ Index.

Back testing: how the plan would have performed historically

Back testing is statistical research which uses hypothetical products with identical terms to this investment plan and considers how they would have performed over a 15 year period had they been launched since October 1994, giving a total of 3,915 different hypothetical products. This analysis shows that a kick out occurred in 81.2% of scenarios, did not occur but investors received a full return of capital in 13.8% of scenarios and at least 50% of investor’s initial capital was lost in the remaining 5.0% of occasions.

Please note that this analysis is simulated and has no bearing on how this plan will perform in the future, actual performance may produce significantly different results. It is not a reliable indicator of future performance and should not be used to assess the risks associated with the plan.

Commerzbank as counterparty

Structured investment plans use your investment to purchase securities issued by Commerzbank and so their ability to be able to meet their financial obligations becomes an important consideration. This is known as counterparty risk (or credit risk) and means that in the event of Commerzbank going into liquidation, you could lose some or all of your initial investment as well as the payment of any growth return. In this event you would not be entitled, for this reason alone, to compensation from the Financial Services Compensation Scheme (the ‘FSCS’).

Credit ratings and agencies

One accepted method of determining the credit worthiness of a counterparty is to look at credit ratings issued and regularly reviewed by independent companies known as ratings agencies. Standard and Poor’s is a leading credit ratings agency and as at 19th October 2015, Commerzbank has been attributed a ‘BBB+‘ rating with a negative outlook. The ‘BBB’ rating denotes a good capacity to meet its financial commitments and repay debts but could be more susceptible to adverse economic conditions than companies in higher-rated categories, whilst the ‘+’ signifies it is at the higher end of the rating grade. The negative outlook indicates that the rating may be lowered in the short to medium term (between 6 months to 2 years).

ISA friendly

In addition to non-ISA investments, this plan also accepts Cash ISA and Stocks & Shares ISA transfers as well as New ISA investments (current tax year limit of £15,240). The minimum investment is £15,000.

Fair Investment conclusion

Oliver Roylance-Smith, head of savings and investments at Fair Investment Company, commented on the plan: “The headline returns on offer from this plan are some of the highest currently available from any kick out investment. But with the potential for such high investment returns it is crucial that investors look carefully at the risks involved. For example, any growth return is dependent on the performance of three NASDAQ-listed shares and is therefore higher risk than a plan based on the NASDAQ Index, whilst the technology sector can be volatile. These should be key considerations. Investors should also note that all three shares need to meet the required level for the plan to produce an investment return.”

In conclusion, he said: “This plan may however appeal to investors prepared to take on a higher level of risk in return for higher potential rewards, whilst the 32% consolation return provides an innovative addition, and the 50% barrier offers some protection against falling share prices.”

Click here for more information about the plan »

 

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek professional advice.

Tax treatment depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

This is a structured investment plan that is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. Any return on your investment is not guaranteed and as shares prices can move by a wide margin plans based on the performance of shares represent a higher risk investment than those based on indices as a whole. There is a risk of losing some or all of your initial investment due to the performance of three shares listed on the NASDAQ Index. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of shares listed on the NASDAQ is not a guide to their future performance.

How to achieve 10%+ growth returns, even if the market goes down

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Last updated: 05/01/2016

Although there are many reasons why investors ultimately decide to go ahead and invest or not, timing the stock market is one of the most commented areas in investor behaviour. So what market conditions lead us to consider whether now is the right time to invest or not? Perhaps two of the most common are when markets are trading at historically high levels, and when markets are particularly volatile. Therefore should both of these market conditions prevail at the same time, which we have experienced during 2015, then the self-questioning around whether to invest can increase significantly.

With this in mind, we take a look at a selection of investments that can still achieve 10%+ growth returns, even if the underlying investment has only risen by a very small amount or, in some cases, has even gone down slightly.

Popular in all markets?

By combining the ability to produce high growth returns, along with some capital protection against a falling market, these kick out investment plans offer a fairly unique blend of risk versus reward which has the potential to appeal to investors in a wide range of prevailing investment conditions. Although notably this type of investment has proved popular when markets are low (on the basis that the investor considers it more likely that the index will rise), these plans have also generated particular interest when markets are at historically high levels, as they have been for periods during 2015.

The potential for high returns

Whenever investors are considering when to invest and where to put their capital, perhaps the most appealing feature is the potential return on offer. All of the investments covered below offer a minimum of 10% for each year invested (not compounded). On the basis that a 7% return on your capital could be considered an investment level return, these are considered to offer the potential for high growth returns.

Example – potential 10.0% after just 12 months…

“The FTSE/STOXXX Defensive Kick Out Plan from Focus offers 10.0% for each year invested (not compounded) provided the value of the FTSE 100 Index and the Euro STOXX 50 Index (made up of the 50 leading blue chip companies in the Eurozone) are at or above a specified level at the end of each year. If either or both Indices close below the required level each year, no growth return will be paid and your capital is at risk if one or both Indices has fallen by more than 40% at the end of the plan, in which case you could lose some or all of your investment.

Depending on your view of the UK and European markets, this plan could offer a compelling combination of high growth potential along with some capital protection should markets fall.”

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Returns even if the market stays relatively flat

Many kick out investments are designed to provide returns even if the market has stayed relatively flat. This means that even if the stock market has only gone up by a small amount, you would still receive the full growth return. So if you’re not convinced the markets will rise in the future and yet still wish to achieve double digit returns, the opportunity to beat the stock market in conditions such as these could be a compelling investment story, and perhaps helps to explain why this type of investment has proved particularly popular with our investors.

Example – potential 10.0% even if the FTSE only rises a little

“The Enhanced Kick Out Plan from Investec will return 10.0% for each year invested (not compounded) provided the value of the FTSE 100 Index at the end of each plan year is higher than its value at the start of the plan (subject to averaging). If the FTSE is lower at the end of every year, no growth will be achieved and your initial investment is returned in full unless the FTSE 100 Index falls by more than 50% during the term, in which case you could lose some or all of your initial investment.

This plan is one of our best selling growth investments and the potential 10.0% on offer from this latest issue is its highest headline return seen since the start of 2013.”

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Double digit returns even if markets fall slightly

There are also a number of kick out plans that will provide double digit growth returns even if the underlying investment(s) falls slightly, for example up to 15% or 20%. These so called ‘defensive’ kick out plans thereby cater for a wider range of investor views as to what could happen to the stock market in the coming years. Whilst stock markets remain at what are historically still relatively high levels, this can prove to be a popular feature.

Example – potential 12.0% each year, even if markets fall up to 20%

“The Investec Dual Index Step Down Kick-Out Plan offers 12.0% for each year invested (not compounded) provided the value of the FTSE 100 Index and the Euro STOXX 50 Index (made up of the 50 leading blue chip companies in the Eurozone) are above a specific level at the end of each year, compared to their values at the start of the plan. The required levels are 100% at the end of year two, reducing by 5% each year thereafter down to 80% in the final year.

If either or both Indices close below the required level each year, no growth return will be paid and your initial investment will be returned in full unless one or both Indices has fallen by more than 50% during the term of the plan. If this does occur, your capital is at risk depending on the worst performing Index and so you could lose some or all of your investment.”

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Some capital protection from a falling market

When comparing the risk versus reward of any investment it is important to understand the circumstances when your initial capital could be lost. With kick out investments your original capital is returned if the plan kicks out, but should this not occur then typically your capital will be returned provided the underlying investment has not fallen below a certain amount, normally a percentage of its value at the start of the plan.

To put this into context, for a plan which offers a return of capital unless the FTSE falls by more than 50%, then based on this morning’s (27/10/2015) opening value of 6,471.0, the Index would have to fall to a closing level of 3,235.5 before your capital would be at risk, a level not seen since 1995. However, if it does fall below 50% you could lose some or all of your initial capital. Please also remember that past performance is not a guide to future performance.

Understanding counterparty risk

One of the main differences with structured investment plans when compared with other types of investments, such as funds or investment trusts, is that your capital is used to purchase securities and it is these securities which are designed to produce the stated returns on offer. These securities are normally issued by a bank which means that your investment is held with a single institution rather than split between a number of companies, as it would be within, for example, an investment fund.

This means the risk of the bank becoming insolvent and therefore unable to repay your original investment along with any stated returns becomes a factor to consider – this is known as counterparty risk. Since the counterparty is usually a bank, the credit rating is normally available so a view can be taken on the potential risk involved. There are also plans which aim to reduce this counterparty risk by spreading it across a number of institutions.

Defined return, defined risk

One of the main features of kick out investments is that the potential returns on offer are stated up front, and so are known before you commit your capital. This allows the investor to consider the potential upside in the context of the amount of risk they are taking, since you know at the outset exactly what needs to happen in order to achieve any stated returns as well as a return of your initial investment. This can then be used to make an informed decision about whether to proceed or not by comparing the defined return and defined risk with alternative investments.

Fair Investment view

Commenting on kick outs as a potential plan to consider, Oliver Roylance-Smith, head of savings and investment at Fair Investment Company Limited, said: “With markets continuing to make investors think very carefully before committing their capital, kick out plans have proved to be a popular choice by offering an often compelling balance of risk versus reward”.

He continued: “Although they should be considered fixed term plans, the opportunity to mature early, sometimes in as little as 12 months, is clearly an appealing feature for both savers and investors. Combined with the potential for high investment returns, even if the market stays relatively flat or in some cases even goes down, and it is understandable why this type of investment could be seen as an attractive opportunity in any investment climate, but especially when markets continue to trade at historically high levels.”

Latest selections

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No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

Tax treatment depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

Kick out investment plans are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of individual shares, the FTSE 100 Index and the EURO STOXX 50 Index is not a guide to their future performance.