UK products offer access to commodities, emerging markets and overseas indexes

Despite a near-impossible pricing environment, issuers continue to offer investors returns on FTSE 100-based products, with a few surprise exotics.

Little change to product types in UK market

As the current pricing environment continues to challenge issuers, the range of products at the start of the year looks similar to that of 2010, but more emerging markets and commodities products are starting to appear.

"Interest rates are historically low, as is volatility, but it is spiking so you have to be able to take advantage of the spikes," says Marc Chamberlain, executive director at Morgan Stanley in London.

Investors are being given options, and not only ones based on the FTSE 100. Gilliat Financial Solutions offered its Overseas kick-out product, for example, which links to three indexes: the S&P 500, the Eurostoxx 50 and the Hang Seng. The five-year-and-two-week product pays a fixed return of 14% (not compounded) if all three indexes are at or above their initial strike level at maturity.

Also moving away from the FTSE was Merchant Capital, which used commodities as the basis for its Agriculture Commodities product. The five-year investment is linked to an equally weighted basket of corn, sugar, cotton and soybeans. It offers a participation rate of 100% in the performance of the basket and 95% capital protection at maturity with no cap on returns.

"Commodity prices are likely to perform well in the current environment," according to the latest global outlook report from Barclays Capital. "Agriculture has recently been the strongest commodity sector," it states.

Barclays also moved away from the FTSE with its merging markets optimiser product. The six-year capital protected investment is linked to the iShares MSCI Emerging Markets Index with participation set at 72.5%. The participation rate is based on the ratio of a defined target volatility to realised volatility and changes based on market conditions. The rate is capped at 150%.

"Attractive returns in lower growth markets remain elusive," says Lisa Chaudry, vice-president at Barclays Wealth in London. "So, the ability to ‘accelerate' growth will help investors exposed to underperforming investments and seeking a potential route to recovery."

Gilliat Financial Solutions and Barclays Wealth have both issued accelerated growth plans: Gilliat's six-year growth investment linked to the FTSE 100 offers eight times the growth in the index subject to a 80% cap on returns. Meanwhile, Barclays has relaunched its Super Tracker investment products, available in a five-year option with potential returns of 60%, and a three-year option offering a maximum return of 27%.

Staying with the FTSE 100 is Morgan Stanley's six-year Defensive Digital Growth Plan, which offers a potential 60% return at the end of the term. "Six years is a long time but if the index is at 80% or above its initial level you will get a return at maturity of 10% a year," says Chamberlain.

"With the continued uncertainty our the best entry products remain attractive, however the pricing environment remains hard to work in. The product records the lowest monthly FTSE level during the first three months from launch in order to set the initial observation level. This feature has helped these products capture the lows," he says.

"This year will be more interesting," adds Chamberlain. "We should hopefully see more thematic products, more strategy-based plays and volatility-based issues. But underlyings are likely to stay set with the FTSE simply because this is what retail investors like and know."

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