FVC custom indexes

Income products lag behind the benchmark

The US benchmark S&P 500 index has risen by just over 4% a month for the past two months, while the US accelerated index has seen increases of 5% in January and roughly 3% in February. The income and protected indexes have both risen over the past two months, though neither by the same magnitude as the accelerated index. The protected growth index has experienced a relatively small rise as participation in the products can be less than 100% (minimum 80%) or they can have digital payouts (which by nature are capped) if the 80% participation cannot be achieved.

The income products have slower increases than the benchmark due to the pseudo cap that is in place, as they can only pay the maximum of the fixed income stream. Generally, when the benchmark is low or falling the income index will outperform the accelerated index and vice versa.

The FTSE 100 index has risen by a smaller amount than the S&P 500 over the past couple of months, though the UK accelerated growth product has outperformed its US counterpart in the past month. The accelerated growth index comprises products with a gearing of 500% and one would be expected to outperform the benchmark under certain market conditions. How long the UK accelerated index continues to outperform the benchmark depends on the strike level of the products included in the index and the level of the cap on each one.

The global indexes are calculated from the UK, US, Japan and Europe. Neither of this month's featured indexes had any falls in terms of the month-on-month or year-on-year performance. However, the global accelerated index showed a negative change year-on-year.

The EU accelerated index was 13.63% lower at the end of February 2012 than the end of February 2011. The Japan accelerated index was also down from last year, but by only 2.2%. All four accelerated indexes have increased over the past month, with the highest increase registered in Japan, which rose by over 10.32%, an increase similar to the 10.45% recorded in the benchmark index, the Nikkei 225.

Note: The FVC structured products indexes are a group of indicators tracking the performance of theoretical structured products based on predefined standard product types. The indexes do not track the performance of real instruments and are not investable, but they aim to give an indication of the long-term performance of repeat investment in a particular structure. There is no market benchmark for structured products, the performance of which tends to be compared to the underlying index or cash, depending on the risk/return profile of the product. The two growth indexes (accelerated and protected) take a long position on the market. The income index incorporates reverse convertible products, in which investors take a short volatility position, selling volatility to generate an income stream.