Glossary M to P
M
Maximum return
– while a large number of structured products allow you to take advantage of any rise in the stock market or index, there is generally a limit (cap) to this benefit.
Medium term notes (MTNs)
– an investment giving a fixed return and which are issued for each plan by large financial institutions that would be at least ‘A’ rated by the credit agency Standard & Poors. A large percentage of investments in a given plan are used to buy the MTNs. These become due for payment at the same time as the plan becomes due for payment.N
NASDAQ
- National Association of Security Dealers Automated Quotations System – this is an US index of technology and biotech stocks.
Nikkei 225
– this is Japan’s index of leading companies, like the UK’s FTSE100 or Europe’s Dow Jones EuroStoxx50.O
Offshore dividend
– this is the term used for income payments made from an offshore company. Because the company is registered and operates outside the UK, it is able to pay its dividends (income) ‘gross’, in other words, without withholding any tax.
Open-ended investment companies (OEICs)
– these are similar to unit trusts but only have one price rather than a buying and selling price.
Open-ended produc
t - Some structured investments are open-ended, meaning that they are available for investment for an unlimited period. Where there is a limited offer period, these are called tranche products.
Opening level
– this is the value of an index or basket of shares at the beginning of the investment period. It is used as the basis for all measurements of performance which then take place.Options transactions – these are the all-important tools that allow the fund to deliver the returns when the MTNs become due for payment. A series of derivatives are sold to deliver the promised returns.
P
Participation
- Many products provide a minimum fixed return plus an additional return calculated by multiplying any rise in the underlying index by a fixed percentage. This percentage is often called the participation or participation rate.For example, if a product offers a 100% return of capital plus 80% in the rise of the DJAIG Commodity Index, then if the index rises by 40% over the term then the investor would receive back his initial capital in full plus an additional return of 32% (i.e. 80% of 40%). The participation in this example would be 80%. In many cases, this is subject to averaging so the final index level is smoothed rather than using the actual closing level.
PEP (Personal Equity Plan)
– this is a tax-efficient investment plan, launched in 1987 by the Government. It was then replaced by ISAs in 1999. Many investors still have investments in PEPs and these can be transferred into new investment plans as they become available, while keeping their PEP status.Protection levels – this is the safety level put in place at the start of a plan and this is designed to help protect your original investment in times of falling markets. Once this level has been broken, if the index does not recover to the necessary level, usually the initial opening level, then some or all of your original investment will be lost.
Precipice Bond
- A precipice bond is a name that has been given to various types of high income products. Originally the name was given to products offered in the UK in the mid-1990s that offered a high fixed income but in which a small fall in the underlying index would result in a large loss of capital. Subject of much current gnashing of teeth, we only associate with products with transparency and clear guarantees.