ISA season is once again upon us and it would appear from the statistics from the Investment Management Association that there is in fact an ISA "season" to look forward to again.
Gross ISA sales in 2010 stood at just over £15bn, up 34% on the previous year however the annual figures don’t really tell the whole story. Combined sales in the first half of 2010 totalled £8.6bn which was nearly 77% of the total ISA sales in 2009 and that’s what I would call an “ISA season”.
I suppose there are no real surprises as to why the numbers are higher; the banking crisis would appear to be behind us, market volatility is off from its peak, investor confidence is returning and, of course, the markets are rallying; well, the equity markets at least!
UK Equity markets have been on a steady(ish) climb over the past 18 months or so which is why, I suspect, that just under half of the new ISA investments made during 2010 were into Equity funds. So, given where equity markets are now and the bulls still pointing north, where should investors put their ISA investments this year?
Before I look at some of the available investments, it’s perhaps worth reminding ourselves of the opportunities presented during ISA season. As well as the wrapper offering a tax free haven for clients to hold investments and cash deposits, transferring and consolidating previous ISA investments presents a useful solution to clients who have a large number of different, possibly smaller, holdings that they wish to invest wholly in a new investment and, provided the holdings are transferred between providers, the ISA status is maintained.
In addition, clients are also able to transfer previously accrued cash ISA deposits into a new stocks and shares ISA however, transfers once completed, cannot be reversed. Also, remember that the ISA limits are increasing for the 2011/2012 tax year from £10,200 to £10,680 for stocks and shares ISAs and from £5,200 to £5,340 for cash ISAs. Admittedly not a huge rise but, an increase over and above inflation, which investors would be foolish not to utilise.
So why might an investor consider Structured Investments either for their new ISA holding or to transfer previous holdings to? Like any investment decision I would imagine there are many reasons why however, what is clear from the IMA statistics is that investors are now clearly more comfortable taking on equity market risk so with the added benefit of an element of capital protection that some Structured Investments can bring as well as a choice of pre-defined equity like return profiles, the decision would seem to be a little easier than maybe it once was?
There are also clients who may be looking to consolidate any performance gains they have made over the previous 2 years or so and who are now looking for investment opportunities offering both an element of capital protection in addition to equity market exposure to benefit from the potential for capital growth.
Investec Structured Products offers a wide range of both Structured Deposits and Structured Investments. Clients looking for deposit structures and, therefore, utilise their cash ISA allowances are able to choose from plans with growth or income structures with a choice of different pay-off profiles and for our 5 year deposit plan, a choice of deposit takers, Investec Bank or Royal Bank of Scotland.
We also offer a 5 year Deposit Growth Plan offering exposure to either the FTSE100 index or our newly created EVEN30 index. The EVEN30 index is an index that is based on the 30 least volatile stocks in the FTSE100 rebalanced on a monthly basis. It has been designed to offer strong potential for capital growth with reduced volatility.
Returns on the FTSE100 product are capped at 60% whereas returns on the EVEN30 version are geared and uncapped. We also offer a FTSE 100 Kick-Out Deposit Plan offering the potential for early maturity at the end of years 2, 3, 4 or 5 with a fixed payment equivalent to 5% per annum (not compounded).
Structured deposit plans are treated as cash investments and are therefore potentially taxable to income tax in the hands of the investor. However, they are tax-free inside an ISA wrapper. Deposit plans are also covered by the Financial Services Compensation Scheme (FSCS) up to £85,000 per eligible claimant per authorised institution.
Clients looking for higher potential returns from their investments may want to consider one of our Structured Investment Plans. We offer a choice of four growth plans and one income plan. These plans are all potentially taxable as capital gains and are also suitable for stocks and shares ISAs. At one end of the risk/reward spectrum we offer the Gilt Backed Growth Plan. This is a 7 year plan offering exposure to either the FTSE100 or our newly created EVEN30 index.
Returns on the FTSE100 version of the plan are capped at 50% however are uncapped on the EVEN30 version. The plan also provides 100% capital protection even if the FTSE100 finishes below its starting level and both versions of the plan are fully collateralised using a portfolio of UK Gilts. At the opposite end of the risk/reward spectrum we offer the FTSE 100 Accelerated Growth Plan.
This plan offers no capital protection and capital may be eroded on a one-for-one basis, based upon the final value of the FTSE100 when compared to the initial value. However, the plan offers 200% of any rise in the FTSE100 with no upper limit on the maximum return. This plan may be suitable as an alternative or to complement a traditional FTSE100 tracker fund.
Our FTSE100 Enhanced Kick-Out Plan offers the potential for early maturity at the end of years 1, 2, 3 or 4 with a fixed payment equivalent to 11% per annum (not compounded). The initial plan investment is at risk at maturity if the FTSE100 falls at any time to less than 50% of the Initial Index Level and fails to either kick-out or fully recover.
We have also recently launched a collateralised version of this plan whereby we hold an equally weighted pool of securities in 5 leading UK banks with an independent custodian as collateral. The collateral is rebalanced daily in line with the value of the plan so that should Investec default, the collateral is made available to all clients. This option has taken the theme of diversification to a new level which we believe allows advisers to more efficiently diversify counterparty risks in line with recent FSA guidance on product and counterparty concentrations.
Using the collateralised option clients are not exposed to Investec but instead equally exposed to 5 leading UK banks, namely, RBS, HSBC, Lloyds, Santander UK and Barclays. The rate on the 5 banks version of our FTSE100 Enhanced Kick-Out plan is equivalent to 9.75% per annum (not compounded).
Our FTSE 100 Geared Returns Plan has the same capital-at-risk profile as the FTSE 100 Enhanced Kick-Out Plan, however, the return profile is much simpler. Provided the Final Index Level is no less than the Initial Index Level the plan pays a fixed return of 70% in addition to the initial investment. In other words, in a flat market, the client would still receive a return of 70% growth in addition to the benefits of the soft capital protection throughout the 5 year term. There is also the option of a collateralised 5 bank version with a return on maturity of 62.5%.
Full details of all our plans, including our popular FTSE100 Bonus Income Plan can be found on our website. We offer an ISA transfer facility on all of our plans and, where the funds don’t reach us in time for cash ISA transfers, we will hold the monies in our ISA feeder account until we receive the client’s final instruction on where to place the funds.
With the increased allowances available for all ISA investors in the 2011/2012 tax year, and the ability to utilise both tax years on a single application form, don’t miss the ISA opportunity.
Gary Dale is Head of Intermediary Sales at Investec Structured Products
Three years at Wells Fargo
Effective from 9 December 2019
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