The last commodity-linked structured note sold in the UK market was launched in 2015 and matured in 2020.

UK provider of structured products IDAD is leveraging the dynamics in the commodities market such as forward curves, fixing and price history to offer a commodity-linked soft-protected structured note targeted at retail investors.

The heyday of commodity structured products was around 2005-2007 when [issuers and investors] traded large volumes across a number of underlying commodities - Bevan Goulden

IDAD's 3 Year Oil Memory Income Plan - May 2024 - Issue 1 is an income structured note hedged by BNP Paribas and linked to the price of WTI crude oil. The three-year investment has been constructed to offer a potential return of 9.16% p.a. (4.58% semi-annually) if on any observation date, the price of WTI oil is above the relevant income trigger (75% of the initial strike level), the income will be paid plus any previously missed coupons.

If the price of WTI oil is above 50% of the strike level, full capital will be returned. In addition, the product will mature early if the underlying commodity is at or above its initial start level starting from 12 months. If the price of WTI oil is below 50% at maturity, investors' capital will be at risk.

"The heyday of commodity structured products was around 2005-2007 when [issuers and investors] traded large volumes across a number of underlying commodities," Bevan Goulden, institutional solutions, IDAD, told SRP.

"Since then, we have seen far fewer products, mainly due to investor appetite — investors have just been less excited about the asset class, with the exception of precious metals," said Goulden.

"More recently, energy and industrial commodities are more in the fore-front of investors’ minds, likely due to big moves during and in the aftermath of the pandemic and more recent geopolitical events.

"Pricing is also now attractive, especially on oil-linked products, due to the Brent & WTI forward curves being in backwardation," he said.

SRP data shows that this is the first commodity-linked play to be marketed in the UK market over the last 10 years. There are currently no other live commodity-linked products in the market - the last one to mature was another oil-linked structure - Crude Oil Kick Out Supertracker Plan March 2015 – which expired on 14 April 2020 delivering a loss of -23.92% p.a.

The five-year capital at risk plan was issued by Morgan Stanley and marketed by Meteor Asset Management and had an autocall, capped participation, leveraged upside structure. This growth product linked to the S&P GSCI Oil ER index promised to pay a 24% return if, after 2.5 years, the closing level of the Index is at least equal to its opening level.

If the plan had not matured early and the final level of the index was above its opening level, the plan would have paid a return equal to 1.5 times the rise in the index. However, because the final level of the index was below the opening level, the product participated 1:1 with the fall of the index.

SRP data shows that the most active issuer and distributor of commodity-linked products in the UK has been Barclays with 33 products worth an estimated US$1.1 billion with copper (54 products/US$1.4 billion), aluminium (44 products/US$1.3 billion) and natural gas (38 products/US$1 billion). Crude oil with 30 products worth US$682m and WTI Crude Oil with 24 products worth an estimated US$445m have played a marginal role in the UK market over the last 20 years.

IDAD is an active distributors of structured products in the UK market – YTD it has marketed 12 products worth an estimated US$30m and has 83 live products worth an estimated US$200m.

Do you have a confidential story, tip, or comment you’d like to share? Write to info@structuredretailproducts.com