The vast majority of structured products available to UK advised clients made money or held their value amid the turbulence of last year - though the proportion which recorded a loss increased during 2020.
Data compiled by Lowes Financial Management, an advice firm and discretionary fund management company in Newcastle, shows only 16 of the 235 structured products available to advised clients that matured in 2020 - or 6.8 per cent - recorded a loss.
That compares with only four of the products which recorded a loss in 2019, from 334 which matured in that year - or 1.1 per cent.
Ian Lowes, managing director at Lowes Financial Management, said: “Most of those that lost money in 2020, it was quite obvious for several years that it would happen.
"There’s no denying that the coronavirus and its worldwide socioeconomic impacts have been colossal. The UK stock market has been in turmoil throughout the year and few investments have been immune to the dramatic turbulence.
"Notwithstanding the exceptional performance of the structured products sector in recent years, 2020 still represented another successful year for retail structured products.
"Almost 70 per cent of all products maturing last year generated positive returns for investors; fewer than 7 per cent returned a loss. The rest simply returned investor capital, having protected it from the fall in the market.”
Lowes acknowledged that such instruments were a “niche” investment product, but he found his clients understood them more easily than a portfolio of funds, because the structured product has a defined range of outcomes at a defined time.
Structured products have existed for about 30 years, and offer to pay a fixed annual return as long as certain conditions are met.
Quite often the products pay out in the event of a certain event in the market, such as the FTSE 100 being above a certain level on a given date in the future. The return is fixed, making the investments much closer to fixed income investments than to shares, but with the returns typically linked to the performance of an equity market.
Minesh Patel, adviser at EA Financial Solutions in London said: “We use a lot of structured products for clients. What we like about them is you can take a five or seven year product, so do something long-term, but also they tend to have annual income and annual opportunities to exit.
"They complement the rest of a portfolio. I have been using them for many years, I don;t know why more advisers don’t use them.”
Earlier this month Investec announced it would stop offering structured products as it ramped up its focus on discretionary fund management and managed portfolio services.
david.thorpe@ft.com
