200% of FTSE 100 returns?
Informed Choice chartered financial planner Martin Bamford was asked for his views on a new structured product being promoted by Cater Allen Private Bank, part of Santander.
The product (called the Capital Guaranteed Enhanced Growth Plan 1) aims to deliver 200% of any growth in the FTSE 100 index over a six year period, with the original investment returned at maturity.
As with all structured products, this plan has some fairly meaty drawbacks.
Speaking to the Guardian earlier, Martin commented:
“This is fairly typical fare from a bank to try and get some cash in during a difficult period. But investors will find they are penalised if they make a withdrawal, while the averaging process Cater Allen is using could make a significant difference to the return investors will get.”
He also warned about the ‘averaging’ process during the final year of the product, where an average value of the FTSE 100 is established to determine the finishing level of the index.
“This can really affect the return investors receive if the index rises significantly during that final year,” Bamford argues. “They’ll get an average, when investors in other products will see the full benefits of that growth. If investors want equity-style returns with less risk, they are better off building a balanced portfolio rather than investing in this kind of product.”
Martin also warned about the wisdom on relying on the financial security of such a plan being backed by a Spanish bank, during the current eurozone crisis.
You can read the Guardian review of this plan here. Do contact us if you have any questions.