NDF Administrations' offer of a new structured product linked to gains and losses by the FTSE 100 suggests the benchmark index is heading for a longer period of relatively less volatility.
Offered as an income plan, the product intends to pay a minimum dividend of 3% for each annual period over a term of six years, but will pay up to 9% in each period if the FTSE 100 does not swing more than 10% up or down in any one year period. A new strike will be set at the start of each period.
Changes in the index greater than 10% in any 12-month period - termed a "annual range trigger event" - will see payouts limited to the 3% rate – equivalent to 5% gross if the investment is done through a wrapper such as an Isa or Pep.
Since 1 February 1999, the FTSE has made gains or losses of +4.6%, -0.6%, -17%, -28.9%, +18.7% and +11.2% respectively, according to Bloomberg figures.
Given the 10% hurdle rate, the suggestion is the product is designed to leverage gains off a less volatile index in the next six-year period.
Simon Harvey, marketing manager NDF Administration Limited, says this is precisely the case, with the product designed around general City expectations that the past six-year period has been one of unconventional volatility.
"The volatility was exceptional. Not many forecasters are predicting such volatility ahead. Also, each annual period is counted separately."
The product has been constructed with current markets in mind, Harvey adds.
Assets backing the product will be arranged by Abbey National Treasury Services, which also acts as market maker in the shares of the Dublin-listed closed ended investment company that investors will hold.
A minimum investment of £3,000 through a mini-Isa applies, or £10,000 if a direct investment outside such a wrapper. The maximum investment is £1m.IFAonline
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