New fund targets beaten up banks via structured products
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By david clive stevenson in General Published: Sunday, 27 April 08 - 07:25 PM (GMT) Last Updated: Sunday, 27 April 08 - 07:36 PM (GMT) |
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At long last the rocket scientists in the peculiar world of structured products are actually beginning to think outside of the box and come up with some funds that are a little different and potentially interesting. Blue Sky in particular lives up to its name by releasing a fund that potentially gives you 12.5 times (yes that is twelve and a half ) times the growth in an equally weighted basket of five leading UK high street banks. Ah but there's a rub - that upside is capped at a maximum rate of 125% AND you don't get the chunky dividend yield from holding the underlying.
I haven't done the full sums but over the six year term I reckon you could be losing out on a cumulative return approaching 45p in the £. Also the upside cap is a real downer - Barclays for example may seem like a bargain at its current 455p but one year ago it was valued at just under 900p - that's a close to 50% fall in one year. Look at it another way and suddenly a 100% or even 125% cap doesn't look very generous. I could see that cap breached within 3 years at which point you'd lose out on any gains above that cap IN ADDITION to that dividend yield. And you don't even get rock solid capital protection - there's 50% soft protection which to be fair won't probably be breached.
If I seem a little unfair on Blue Sky its because in investment no matter how clever the product - and this is well timed - what really matters are the details and these aren't generous enough. I think I actually might prefer the Global Financial Services Investment Note from rival Barclays (launched last year) which sports 160% upside participation with no cap over 5 years and rock solid 100% capital protection. I also like the fact that the Barclays product has a wider spread of global banks.
FULL DETAILS BELOW
Innovative investment boutique Blue Sky Asset Management (BSAM) is launching a unique structured product offering investors 12.5 times the growth in the top five UK banks, to a maximum return of 125 per cent, over six years, targeting a long-term recovery in the banking sector.
The Accelerated Recovery Plan is based on a bespoke portfolio of the UK’s five leading banking groups - HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS - and will provide the accelerated growth potential with 100% contingent capital protection at maturity, subject to a 50% Downside Portfolio Barrier Level. In addition, BSAM has facilitated a form of ‘phased entry’ for investors, and will use the average prices of the five banks between June and September as the starting level for the Portfolio.
The ARP Plan will accelerate any growth in the banks that form the Portfolio by 1250%, meaning that only a 10% recovery in their share prices is required over 6 years – little more than 1.5% per year - in order to deliver the maximum return of 125% to investors.
The three-month phased entry at the beginning of the plan is designed to account for the prevailing short-term volatility in the sector, whilst providing investors with immediate access to the long-term recovery potential of the stocks.
The Accelerated Recovery Plan is open to new business immediately – the closing date is 16th June for new business and 23rd May for ISA transfers, including cash ISAs. The strike date – the start date of the Plan – is 20th June, with the three-month averaging applied to the opening prices until 20th September.
Chief Executive at BSAM, Chris Taylor said: “Having focused on the banking sector over several months, we believe we are now at a point where it is reasonable to anticipate the beginning of the end to the turmoil seen in the stocks. Substantive and effective action by central banks around the world, including the Bank of England, is increasing liquidity and volatility is beginning to dampen down. There is light emerging at the end of the tunnel.’’
“The rights issue from Royal Bank of Scotland – a U-turn since March - is further evidence of the “kitchen sinking” in the sector. There may be more bad news to come in the short term, but ultimately the ‘come clean and repair’ chapter of the crisis that we are now seeing will expedite the longer term recovery that is on the horizon. This creates an opportunity for investors to think ahead and to position themselves to take maximum benefit out of the recovery.’’
”Structured products are increasingly providing a new breed of high value investment solutions for professional intermediaries. The Accelerated Recovery Plan is a tactical offering for investors who wish to target relatively aggressive growth strategies. The scope for high and absolute returns from even a minimal medium term recovery in the banks within the Accelerated Recovery Plan is exceptional – the highest gearing and cap that we are aware of ever in the UK. And the innovative use of three-month phased entry averaging mitigates the short term risk and provides a clever long term access solution for investors.”
BSAM’s products – which include a series of 10 per cent annual income plans utilising the same portfolio of banks plus mainstream growth plans - are available to retail investors and institutions through professional intermediaries. BSAM is unusual in its positioning as a structured investment firm, aligning a proprietary and independent research capability with a specialist structured asset management approach. The emphasis placed upon research-backed investment thinking and the innovative use of structured asset management, offers unique investment solutions to investors - and the firm is due to unveil further propositions over the next four weeks.
BSAM believes that retail investors need to be offered more intelligent structured investments designed to maximise returns, within an optimised and balanced risk and return approach. This contrasts with many other structured products which BSAM suggest are shaped by what providers think will sell the most, as opposed to what may deliver the best performance to investors.
In the financial sector BSAM argues that as the market starts to re-assess and re-price the banks the optimal window for investors to access the performance from any recovery will pass. Indeed, the most recent bad news emanating from the banks has actually been received positively by many in the market, with sanguine reactions and mooted sector and share price movement, reflecting the fact that whilst banks clearly remain under pressure in the short term much of the outlook is in prices already. The constructive and coordinated actions of Governments, central banks and the banks themselves are increasing confidence that an end to the write downs and the associated liquidity and confidence crisis is in sight.
BSAM highlights that the share prices of the five banking groups within the ARP Portfolio have all fallen by an average of 35% over the last 12 months – ranging from 13% for HSBC to 53% for HBOS. The downside portfolio barrier level is only breached by any of the stocks falling a further 50%, from the averaged strike point of 20 th June to 20th September.
The barrier level is triggered by closing prices only and ARP also includes six months averaging at the close of the Plan, which spreads the measurement of the final value of the stocks over this period to reduce any final volatility and protect any gains. Any potential capital loss within the Plan, at maturity, is 1% for 1%, in line with the value of the lowest stock in the Portfolio, if the barrier is breached.
ARP has a minimum investment of £10,000 for Direct Investment - which is available to individual investors, pension schemes (such as SIPP or SSAS), corporate, trustee and charity investors; or £7,200 if investment is made through an ISA or ISA transfer. Commission for intermediaries is 3%, which can be rebated to enhance investments. BSAM highlights that the Plan is established based upon a set volume of pre-hedged assets, and will potentially close early if oversubscribed. In the event of early closure, three days notice will be provided to intermediaries.
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