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Defensive autocalls

What is a defensive autocall?

A defensive autocall is a type of structured investment. Autocalls offer the potential of a fixed capital return if the indices to which they are linked are at or above their starting level on given dates. They can also be configured to pay an income. The level the index needs to reach before a return is made typically falls over the life of the autocall. This means a defensive autocall could provide a positive return in a falling market. Whether an autocall redeems on any anniversary of the start date depends on the underlying chosen index being above specified levels on each anniversary, as illustrated.

The features of a defensive autocall

Example:
  • The autocall costs the investor 100p on day 1
  • The maximum term of the autocall is 6 years
  • The potential simple annual return is 7.25%
  • Payoff barrier levels reduce 5% each year
  • Capital is protected at maturity up to 40% fall in the index

The flow chart illustrates the different possible outcomes for the investment. It shows that this structured investment has a maximum possible life of 6 years, but that it can redeem early on any anniversary of the start date. Whether or not it does depends on the Index being above specified levels on each anniversary, as illustrated.

For example, it shows if:

One year after the start date the Index is above its initial level the structured investment redeems and pays the investor:

  1. 7.25p return
  2. 100p of initial investment

Equalling a total of 107.25p.

Put another way, if after year 1 the Index has risen at all, the investor receives an 7.25% return.

You can follow the flow chart to see all the different possible outcomes and the corresponding minimum Index level required to generate that outcome.

The Index can fall up to 25% from its initial level and will still pay the investor an uncompounded return of 7.25% per annum.

​If the Index falls by more than 25% but less than 40% of its initial level, the investor receives initial investment of 100p only.

However, if the Index falls more than 40% from the initial level by the final observation date, the investor will lose 1p of capital for every 1% the index has fallen from its initial level, unless the structured investment has already redeemed early.

Commonly asked questions

Structured products risk information

Credit risk

The holder of the investments will be exposed to the credit risk of the issuer. A decline in the issuers credit quality is likely to reduce the market value of the product and therefore the price an investor may receive for the product if they sell it in the market.

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Market risk

Capital repayment depends on the performance of the underlying; the future performance of which cannot be guaranteed.

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Liquidity risk

The investments will not be traded on an organised exchange. The issuer will use reasonable efforts to quote prices in all market conditions.

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Exit risk

The secondary market price of the investments will depend on many factors including, but not limited to, the value and volatility of the underlying index, interest rates, dividend rates, time remaining to maturity and the creditworthiness of the Issuer. Prior to maturity, the price may be less than the amount the holder would have received on maturity of the investment.

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Tax risk

The tax treatment of structured products can be complex and tax rates and regulations may change during the term of this investment. Guidance is given here, but if in any doubt investors should seek their own professional tax advice.

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Time horizon

Whilst an investor might be happy with the capital erosion prospects at maturity, the reference index/indices may fall throughout the life of the security and the security might fall by more than you would expect.

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