Defensive plans laid bare

Defensive plans laid bare

17 April 2012 / by Oliver Roylance-Smith

The rise in the value of the FTSE during the first quarter of the year has resulted in an increase in the number of defensive plans available which are designed to produce a fixed return even if the FTSE falls. We take a closer look at our selection of defensive plans to find out exactly what they have to offer.

FTSE growth

The FTSE opened the start of the year at 5572 and during the last week of March, closed as high as 5902. As a result of this period of growth, there has been an increase in the number of plans that pay out even in the event that the FTSE falls; these are commonly known as defensive plans.

Many of these plans will have been priced when the FTSE was hovering around the 5,900 mark and so with the recent falls to below 5,700 they could be seen as an opportunity, although it should be remembered that past performance of the FTSE is not a guide to future performance.

What is a defensive plan?

Each of these investment plans will be structured to offer a defined return for a defined level of risk. As such you will know from the outset exactly what must happen in order to receive the stated return and a return of your initial investment.

Although each plan has its own characteristics, collectively they are growth investments which offer the potential for a fixed return, even if the FTSE falls either during or at the end of the investment term by up to 50%. This means they are designed for investors who have a negative outlook or who wish to receive potentially attractive returns even if the market falls.

Fixed returns

The Morgan Stanley FTSE Booster Plan offers a fixed return of 60% at the end of the investment term, even if the FTSE has fallen by up to 20%. The plan also has a unique booster feature which means that even if the FTSE falls between 20% and 50%, you will still receive a positive return; for example, if the FTSE falls by 60% you will still receive 20% growth.

Even if the FTSE falls by more than 50% you still receive twice the final level percentage (e.g. if the FTSE dropped to 40% of its initial level you would receive 80% of your initial investment, equivalent to £8,000 on a £10,000 investment). Therefore this plan provides an attractive balance of potential upside and a level of protection against a falling market. Get more information here »

The FTSE 100 Defensive Returns Plan from Investec offers the opportunity for returns in both a defensive position as well as positive rise in the market by offering a return in either event. Should the FTSE rise then you will receive 100% of any rise (uncapped) but should the FTSE fall, you will receive 100% of any fall, subject to a cap of 50%. Should the FTSE fall by more than 50% then your initial investment will be reduced by 1% for every 1% below the 50% mark. Get more information here »

Benefit from early maturity

These plans have the potential to mature early or ‘kick out’ from year two onwards, provided the FTSE is at least 90% of its starting value (i.e. the FTSE can fall up to 10% and it can still mature early). If this occurs, the plan will mature and provide a fixed return for each year the plan has been in place.

In the event of early maturity, the Morgan Stanley FTSE Defensive Bonus Plan will return 9% for each year plus the return of your capital. If the plan does not mature, your capital is also protected (Morgan Stanley is the counterparty) provided the FTSE does not fall by more than 50% at the end of the investment term, otherwise your original capital is at risk. Get more information here »

The Investec FTSE 100 Defensive Kick Out Plan provides a marginally lower return of 8.5% in the event of kicking out and each maturity date is based on the average closing values of the five days prior rather than a single day. There is also 50% conditional capital protection and the plan spreads your counterparty risk across five institutions rather than just one. Get more information here »

New ISA limit

All of the above plans are available as ISA investments as well as accepting ISA transfers and non-ISA investments. Remember the new ISA limit for the current tax year is £11,280.

If you have any questions on how to apply please contact our Customer Services team on 0845 308 2525.

Compare our Defensive Investment Plans here »

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.

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. 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. Tax treatment depends on your personal circumstances and is subject to change.

© Fair Investment Company Limited