Autocall products are increasingly popular with investors, advisers and product providers and should be judged on investors’ comfort, not on missed opportunities. Autocalls, also known as kick-out plans, have captured a large part of the structured product market in recent years. Product providers use them to offer higher payoffs than other SPs that automatically run to a full term. Advisers are using them to generate double-digit returns and provide portfolio diversification. Autocalls pay out a defined return providing a predefined event takes place. A simple FTSE-based product may offer 10% per annum if the index rises by a set amount from its initial starting point. If the trigger event occurs, the plan terminates early and returns investor cash plus the offered coupon. Should the trigger not occur, the plan keeps going to subsequent trigger anniversaries until kick-out conditions are met, rolling up coupons as it goes. If the plan reaches maturity, it pays out the cumulative coupon and returns the initial investment.
Definitions
Many current products are based on single index structures that kick out if the market is flat or higher than its strike rate on each anniversary. Even if plans do not kick out, investors should remember they have not lost an annual coupon, merely rolled it up.
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