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Mix and Match Investment Products for Maximum Impact

By David Stevenson

Volatility is a horribly double-edged sword, but smart investors in the UK can hedge their bets by using structured investments and products wisely. They buy products with a generous structure (falling call levels contained within a defensive autocall can be very helpful) and sensible annual returns (don’t always chase the highest possible upside return) that are issued by counterparties where the actual chance of a default is very low.

Crucially, make sure that you understand how different products work in different markets:

  • Traditional autocalls: These tend to work well in what investors call range-bound markets, in which an index such as the FTSE 100 trades over a number of years at levels that vary between 5,000 and 6,000. Zeros can also work well in these markets.

  • Defensive autocalls: These may work well for weak markets where investors expect moderate falls in the underlying index of between 5 and 20 per cent.

  • Accelerators: These work very well in volatile markets witnessing the first stages of a pronounced bull recovery. As markets power ahead you may reasonably expect caps to be hit very quickly – if you’ve bought a product listed on the stock market, you should be able to sell out almost immediately the cap is hit.

    The key is then to reinvest back into a momentum driven market through a straight plain vanilla tracker or via a growth structure with no cap on the upside.