STRUCTURED PRODUCT PORTFOLIOS DAVID STUFF CUBE INVESTING

INTRODUCTION Understand the returns that structured products offer Appreciate when are they suitable and appropriate Know how a managed portfolio of structured products works Understand the benefits for investors Understand the benefits for advisers

CUBE INVESTING Independent provider of research on all retail structured products www.cubeinvesting.com Work with advisers to help select the best, most suitable and appropriate product Work with investment managers that use structured products Act as a product manufacturer / arranger Developed the managed portfolio concept, defined portfolio mandates Responsible for products and distribution

Understanding structured products WHAT YOU GET TOLD WHAT YOU NEED TO KNOW How the return is calculated How the income is calculated How the final value is calculated Issuer risk What return can I expect? What is the chance of getting this return? What are the risks? What is the chance you could lose money? How much money could you lose?

Kick-Out | barrier | payoff WHAT YOU GET TOLD Issuer Underlying: FTSE Maximum term: 6 years 100% Kick-Out level each year Potential 10% return each year if the note kicks out No income Capital at risk if the index has dropped by more than 40% over 6 years

Product analysis WHAT YOU NEED TO KNOW WHAT DOES THIS MEAN? 58% chance of 1st Kick Out, return 10% per annum 88% chance of kick-out at some stage and then the conditional gain is 9.7% pa 9% chance of no return 3% chance of loss, and then the average pay-out is 49% 5.7% Average Return 9.9% Volatility The level of volatility means that this is a Cautious product, SRRI 5. Very low chance of loss, so suitable for clients wanting to avoid losses High conditional return will be received even if markets only slightly up. Suitable for clients that want to make money in most market conditions

Distribution of returns Chart shows the expected returns of 3 assets This Autocall All current retail products FTSE Tracker Fund Analysis shows that structured products offer the sort of return that many investors want A high chance of a good return (5% to 10%) A degree of protection

FTSE structured products vs ftse tracker Compare annual return of FTSE Autocalls that have matured versus FTSE iShare return over the same period 65% of FTSE Autocalls delivered a higher return than the iShare Outperformance strongest when FTSE returns are lower

WHY we like structured products Positive returns when markets are flat Protection against loss Simple to understand

Adviser perspective BENEFITS PROBLEMS Good historic returns No requirement for underlying growth Clear outcomes Risks are obvious and transparent Clear materials Low fees and charges Risk that investors don’t understand Transactional model; time and effort Does not fit modern fee structure Does not fit with model portfolios Difficult to demonstrate suitability Issuer default risk? Not very liquid?

The solution: A Managed portfolio service Discretionary Management Service Aiming for positive returns under most market conditions Invests exclusively in structured products

How does A SP mps work? Similar to a standard managed portfolio service Invests in structured products rather than funds Investment manager determines the weights and holdings of each portfolio All of the notes in the portfolio can be bought and sold every day Each investor owns each of the underlying notes New investors buy each note at the prevailing market price New investment will be executed once the funds have cleared Redemptions will be executed immediately

Diversification | risk management Issuer Diversification / credit quality Limit maximum exposure to any issuer Investment rating| credit default swap Diversification Underlying market Strike date | strike level Risk Target maximum portfolio and product volatility Active risk management

Managed portfolio BENEFITS EXPERT MANAGEMENT BETTER PRODUCTS The investment manager is responsible for product selection Maximize return / minimise risks Dedicated expert managers Screen over 3,000 existing products Create bespoke products Active management DFM can invest in institutional products and create new products No fees in the products No plan management fees Better terms More liquidity More issuers

Benefits for investors Attractive risk and return Expert management; controls risk, maximizes return Diversification; issuer, markets, dates Less effort required; manager makes all the decisions Access to institutional Products; better terms, more issuers Buy and sell as required Quarterly income ISA and SIPP

Benefits for advisers Open-ended; buy and sell at a time that suits the investor Eliminate risks of missing investment deadline from delays transferring assets Saves time and effort picking products Reduced advice risk because there is a clear objective and risk graded Active risk management; maximizes return and manages risk Initial and annual fees Complements managed portfolios

Cube managed portfolios Product Details

The 3 cube portfolios CAUTIOUS RETURN CAUTIOUS INCOME BALANCED GROWTH 10% maximum volatility 6% to 8% growth No income CAUTIOUS INCOME 6% to 8% quarterly income Capital preservation BALANCED GROWTH 15% maximum volatility Income and growth 7% to 9% total return Quarterly income

The team Investment manager Administration Custody Valuations Reporting Applications Adviser fees Design and development of MPS Portfolio mandates Product and portfolio analysis Secondary market Bespoke product development Marketing Distribution

Brochures and marketing material www.cubeinvesting.com What we offer / managed portfolio Brochures Application forms Portfolio summary documents Fact sheets Product descriptions Links to James Brearley and Sons site

Wrappers and charges WRAPPERS FEES AND CHARGES ISA Pensions General Investment Offshore Bonds 1% per annum AMC 0.5% initial charge £2.00 per income payment No dealing charges No product fees or charges

Reporting Website: https://www.jbrearley.co.uk Select: Private Client Login Username: bre142391 Password:  Spmodel Select: "Client" from the options on the left Select: the Portfolio option for each portfolio

Learning objectives What sort of returns do structured products offer? When may structured products be suitable and appropriate? How does a managed portfolio of structured products works? What are the benefits for investors? What are the benefits for advisers?

contacts CUBE James Brearley and Sons David Stuff CEO david.stuff@cubeinvesting.com Steve Denton Business development steve.denton@cubeinvesting.com David Hannis