What is a booster?
A booster is a type of structured investment which offers increased participation in the underlying index between two pre-defined index levels. These investments are not new, but the difference with Boosters is that the lower level is below today’s current stock market level. This means that it’s possible to make a positive return if the index is flat or down at maturity. In order to afford this, the participation is capped - usually at a 20% rise in the index (as per example).
How does it work?
Below is an example of a payoff:
- Potential return: 180% participation from 80% to 120% of the index from its initial level, therefore the maximum return is capped at 72%
- At maturity, conditional capital protection barrier is at 65% of initial level
- The term of investment is 6 years
- The investment cost the investor 100p on day 1
| Index at maturity (%) | Potential return |
|---|---|
| 150% | 172% = 100p capital returned + (40% *1.8) |
| 120% | 172% = 100p capital returned + (40% * 1.8) |
| 100% | 136% = 100p capital returned only + (20% * 1.8) |
| 80% | 100% = 100p capital returned only |
| 65% | 100% = 100p capital returned only |
| 60% | 60% = index fallen below conditional capital protection barrier so capital is lost on a 1-for-1 basis |