Investments to match your view of the FTSE 100

Investments to match your view of the FTSE 100

12 June 2012 / by Oliver Roylance-Smith

The FTSE 100 is one of the most important indicators of investment performance and acts as a key benchmark for many investors in the UK. Its continuous ebb and flow is a constant reminder of just how quickly the market can change, and so we give you a round up of our current selection of investment plans depending on your view of what will happen to the FTSE. 

FTSE year to date

For UK investors, the FTSE 100 is often the first port of call when considering their investment options. However, the highs and lows, especially over relatively short periods, reminds us that if our investment is open ended, the value of the index at the start and end of our investment is a significant factor in our overall return.

The volatility of the FTSE can sometimes be overlooked and with the value of the index over the last 52 weeks ranging between 4,791 and 6,084*, those with investments which have full exposure to the ups and downs and rely on the FTSE going up, even with the addition of dividends, can come unstuck and we should always bear in mind that past performance is not a guide to what will happen in the future.

Investments to match your view

The selection of investment plans below offer defined returns for a defined level of risk, i.e. you know exactly what must happen in order to achieve the stated level of returns. This at least provides some framework upon which we can make investment decisions, but the next question to ask is what do we think will happen to the FTSE in the next 5 to 6 years?

Bullish – the future’s bright

If you are confident that the FTSE will go up, potentially by some margin, then Investec’s Accelerated Growth Plan will return 2.6 times (260%) any rise in the FTSE over the 5 year term, with no cap on the potential returns available. For example, if the FTSE rose by 20% over the 5 years, you would receive a return of 52% plus your original investment (subject to the conditional capital protection – see below).

In addition to double digit returns, if the opportunity for your investment to mature early is important, then a kick out plan might be worth considering. These plans are designed to mature early or kick out if the FTSE is higher than its starting value at the end of each year. Legal & General’s newly launched Early Bonus Plan offers to return 10.25% for each year the plan has been in place and can mature from year 1 onwards.

Finally, Investec’s Geared Returns Plan will return 82.5% after 5 years if the level of the FTSE is higher at the end of the term than its starting value, with the final level taken as the average closing level for the last 6 months of your investment. Therefore, even if the FTSE is up a fraction, you will receive what equates to 12.8% per year compound.

Bearish – the future’s not so bright

If you think the FTSE may fall in value then there are still a number of options that are designed to offer the opportunity for competitive returns even if the index falls by up to a certain amount.

Morgan Stanley’s Booster Plan has been a popular investment and the latest version is due to launch on Thursday. This will offer a fixed return of 70% (equivalent to around 9.25% per year compound) provided the value of the FTSE at the end of investment has not fallen by more than 15% of its starting value.

Even higher returns are available via Meteor’s Quarterly Defensive Plan but this investment is different to all of the others covered here, in that the return is dependent on 5 shares listed within the FTSE 100 rather than the index itself, making it a higher risk option. However, the potential returns are higher, with 4.5% paid for each quarter the investment has been in place, equivalent to 18% for each year. The investment will mature early if the closing share price of all 5 shares is at least 85% of their respective opening values at the end of any quarter from quarter 3 onwards.

Morgan Stanley also offers the potential for your investment to mature early based on the performance of the index as a whole. The FTSE Defensive Bonus Plan will mature early from year 2 onwards if the FTSE is at or above 90% of its starting value, returning 11.5% for each year the investment has been in place. Therefore, the FTSE can fall by 10% and you will still achieve a competitive return.

Stay relatively flat - not sure about the future

If you understand that you need to gain access to the stock market in order to have the potential for higher returns than those available from cash, but are really unsure whether it will go one way or the other, a kick out investment might be an option since the opportunity to achieve high returns occurs each year.

In addition to Legal & General’s Early Bonus Plan detailed above, Investec offers the potential for 13% per year via its Enhanced Kick Out Plan. This can mature from year 1 onwards if the FTSE is higher at the end of any year than its starting value. Therefore, the FTSE only has to go up by a very small amount in order to provide a very competitive rate of growth. The Geared Returns Plan will also pay out a highly attractive return of 82.5% if the FTSE has only gone up a little.

Alternatively, to hedge your bets on the FTSE falling by a small amount, all of the investments covered in the bearish section could be options to consider and provide a way of beating the market if it stays flat or falls by a relatively small amount.

Conditional capital protection

All of the above investments include what is known as conditional capital protection. This means that provided the FTSE (or each of the 5 shares in the case of the Meteor plan) does not fall by more than 50%, either throughout the investment or at the end only (depending on the plan), you will receive your original investment back. If it does fall by more than 50% your capital will be at risk, so you must be prepared to accept this before proceeding.

Morgan Stanley’s Booster Plan stands out here, as the capital protection works differently to the others. Should the FTSE finish more than 15% lower than its starting value then the ‘Booster’ feature means that the investor will still receive 2 times the final index value. So even if the FTSE has fallen by 40%, you will receive 120% of your initial investment, i.e. a return of 20%. This plan therefore provides a positive return unless the final value is less than 50%.

Find out more

Depending on your view as to what might happen to the FTSE, the above selection offers an investment to match. All of the above investments apart from the Morgan Stanley plans are available now, just click on the links to find out more and request information by email and post. The Morgan Stanley plans are due to launch on Thursday but click on the links and complete your details and we will send you the full investment pack by email and post as soon as they become available.

* Source: Yahoo finance, 13/06/2012

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No news, feature article or comment should be seen as a personal recommendation to invest. If you are in any doubt as to the suitability of a particular investment 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.

Structured investment plans 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 or individual shares is not a guide to their future performance.

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