CITI JAPAN AND EUROPE AUTOCALL GROWTH PLAN – FEBRUARY 2023

Introduction

Important information is provided below please read this in conjunction with the recommendation letter.

Please read all of this guidance in conjunction with the supporting fact sheet and key investor information document (KIID) below.

What is a Structured Product?

A structured product is a fixed-term contract, providing a return based on the performance of an underlying share or stock market index.  Inherently, a structured product is designed to limit investment losses while still creating a return to investors.  Some structured product investments offer a degree of capital protection, while others do not.  The growth is usually not guaranteed, and you may not get a return on your investment.  Even where there is capital protection, the deduction of fees and charges could mean you receive less than you put in.

It is important to mention that a new structured product is not suitable for people who require access to their money invested during the potential term of the product.  Early redemption can be part of the whole amount invested, but investors may receive less than the original sum invested.

Guidance for the new individual structured product - Citi Japan and Europe Autocall Growth Plan February 2023

The Citi Japan and Europe Autocall Growth Plan February 2023 will pay a return of 21% (10.5% per annum) plus initial capital if the Nikkei 225 and Eurostoxx 50 indices are at or above 95% of their respective start date levels on the first observation date, 28 February 2025.  The start date for this plan is 28 February 2023.  If one or both indices is below 95% of its start level, the plan continues to the next quarterly observation date and the potential return increases by a further 2.625% each quarter until the plan matures or the final observation date of 28 February 2028 is reached.

The early maturity or autocall barrier level of 95% or above of the index start levels continues for first year of quarterly observations.  This subsequently reduces to 90% for the following year, 85% for the next year, until finally 80% for the final observation on 28 February 2028.

This plan also has an element of capital security, whereby if the the worst-performing of the Nikkei 225 and Eurostoxx 50 indices as of 28 February 2028 has not fallen by more than 35% from the start level on 28 February 2023, all the investor’s capital is returned. 

Capital protection

The capital protection for this plan is dependent on Citi fulfilling its obligations, along with the investment being held until maturity, unless there is a prior autocall.  The initial capital is used to purchase securities in Citi that have similar characteristics to investing in corporate bonds.  In the unlikely event of default, investors will be creditors of Citi.

Citi has been rated ‘A+‘ by Standard & Poor’s as of 19 December 2022.  Standard & Poor’s is an independent credit rating agency that uses a scale to denote creditworthiness, ranging from ‘AAA’ (highest) to ‘D’ (lowest).  Issuers within the ‘A’ rating band are described by Standard & Poor’s as having strong capacity to meet their financial commitments but more susceptible to the adverse effects of changes in circumstances and economic conditions than those issuers rated ‘AAA’ or ‘AA’.  Further information about ratings can be obtained via this website: www.spglobal.com/ratings/en/about/understanding-credit-ratings.

Capital at risk

Initial capital is not 100% secure with this structured product.  If at maturity on 28 February 2028 the worst-performing of the Nikkei 225 and Eurostoxx 50 indices are below 65% of their initial level, the initial capital being returned will be reduced by any negative performance.  For example, if the Eurostoxx 50 index was 70% below its initial strike level, the initial investment would be reduced by 70%.  Therefore, the return of the original capital invested is not guaranteed.

Risk warnings

While the tax rules and rates that are used within any current recommendation are up to date, the rules and rates can change at any time.  Mattioli Woods can accept no liability for any such changes and their potential effect on your investment.  The value to you of any tax benefits will depend on your personal tax position at the relevant time.

The value of investments and the returns from them can go down as well as up and you may not get back the amount you invested. Past performance is not an indication of future returns and investments need to be considered as medium to long-term holdings.  Inflation will erode the purchasing power of your money.

Specific risk warning

There is no fixed cost for exiting this plan at maturity.  Please note, if you needed to sell this plan prior to maturity, the issuing bank will endeavour to provide quotes under normal market conditions for trading purposes on request, subject to a bid-offer spread of 1%.  Please ensure you read the accompanying fact sheet.  Citi has defined the holding period as ‘the recommended holding period for the product which is until 28 February 2028 corresponding to the product's maturity’.  Please also read the KIID in relation to this statement.

Concentration risk

Investing in multiple individual structured products exposed to the same indices increases the risk to an investor should those indices suffer severe losses.  However, this risk is spread across a wide range of index levels and future dates and will be mitigated by maturing structured products where autocall occurs.

We closely monitor this risk for existing structured products and whenever a new structured product is being considered, but should you have any concerns please contact your consultant.

Cancellation risks

If you change your mind and do not wish to invest, please inform your Mattioli Woods contact by 28 February 2023, the start date for the structured product.  After this date you will only receive the value of the structured product when sold back to the product provider, which is likely to be less than your original investment.

Economic overview

Global growth is currently on a downward trend in response to inflation pressures on real wages, and rising interest rates, but the economic cycle will recover, with many economists looking to the second half of 2023 for an upturn in demand and output.  The Japanese and Eurozone stock markets appear well placed to take advantage of this, benefiting from lower valuations than the US stock market, as well being relatively sensitive to the economic cycle.

Stock markets tend to move ahead of an economic cycle, perhaps by six months.  Leading the way will, at first, be the company names that were on death’s door, but now have a reprieve.  However, these do not represent long-term investment options.  Following them, we are likely to find cyclical sectors as business and consumer confidence picks up, and pent-up demand helps kick-start the recovery.  Stock markets that have the greatest exposure to cyclical sectors, such as Japan and the Eurozone, are likely to perform well.  In Japan, cyclical exposure is dominated by electrical appliances and retail, while in the Eurozone we find industrials, autos, and luxury goods.

The US stock market also has many cyclical stocks, but the dominant sector is tech.  This is a sector highly sensitive to changes in real interest rates, which are likely to climb in 2023 as inflation falls while nominal interest rates continue to rise early in the year and are then put on pause.

One of the biggest risks to the above scenario is the prospect of a weak dollar, as the greenback falls from the multi-decade high reached last autumn.  A weaker dollar will impact on large exporting economies, such as France, Germany, and Italy, and of course Japan, as American and other dollar-bloc countries find it easier to compete.  However, the dollar has already given back some of its 2022 gains in recent months, with the likely impact on Japanese and Eurozone exporters now probably priced in to their share prices.

Information on IDAD and their relationship with Mattioli Woods

A company called IDAD is employed on behalf of Mattioli Woods to conduct an auction with competing structured product providers.   IDAD also settles the trade with our custodian and provides all the supporting documentation required by the FCA.  To complete these tasks, IDAD charges a fee.  For the Citi Japan and Europe Autocall Growth Plan February 2023, IDAD’s fee is not expected to exceed 1%, with Citi’s estimated fee of up to 1%.  The combined total of these fees cannot exceed 2% and as noted, they are built-in to the return of the plan so do not reduce the amount invested.  For example, based on a monetary investment figure of £10,000, the fee would equate to £200.  This charge has been accounted for in arriving at the stated potential returns and will not be deducted from that figure when the plan matures.

Financial Compensation Scheme (FSCS)

This product offers no FSCS protection.

Scope of advice

For over 30 years Mattioli Woods has been at the forefront of providing advice, pension administration/trusteeship, and investment products and services for clients across the country.  Its key aim is to put clients first to help them reach the objectives they set.  This is done with integrity and professionalism while maintaining a bespoke approach, and it continues with this ethos as part of its culture.

The Mattioli Woods website (www.mattioliwoods.com) provides a further history of the company and the products offered to achieve clients’ various requirements.

In terms of financial legislation, firms can be ‘independent’, or ‘restricted’, or both.

We offer our own discretionary portfolio management (DPM), self-invested personal pension (SIPP), personal pension (MW PP) and small self‑administered scheme (SSAS) services as our investment managers and consultants/client relationship managers are specialists in these areas of advice and management.  For this reason, we are classed as a ‘restricted’ advice business and, only where it is suitable and in line with your objectives, we will recommend these solutions to you.  Should your circumstances not be best served by our own propositions, we will look to the wider market to source the most appropriate solution for you.

In addition, as part of our centralised investment proposition, we offer the Custodian Property Income REIT plc, which is a real estate investment trust managed by Custodian Capital Limited, part of the Mattioli Woods Group.

Our solutions are designed to meet your needs and where appropriate we can also offer advice on pensions, investments, and non-investment insurances (protection policies) from the whole market.

Mattioli Woods is committed to ensuring the principles of ‘treating customers fairly’ set by the Financial Conduct Authority are applied with integrity throughout all aspects of our business.

Any tax-based calculations completed by Mattioli Woods are for illustrative purposes only, and we recommend you check these with your accountant or tax adviser.

ISA guidance

If the recommendation is in relation to an individual savings account (ISA) please read this section.  ISAs are a tax-efficient wrapper with the option to save via cash and/or stocks and shares, making them ideal for investors as there is nothing to include on tax returns.

Full details are included in the investment guidance booklet that has been made available either online or provided to you, to which we would refer you, along with your supporting key information documents as appropriate.

You can draw funds from your ISA and replace the amount within the same tax year without losing the tax benefits or using up any further allowance in that tax year.

Specifically:

  • Flexi-ISAs enable investors to draw cash from their ISA and subsequently replace this within the same tax year without it counting towards their annual subscription allowance.
  • The replacement of cash must happen within the same tax year the cash is drawn.
  • Any drawn cash not replaced before 5 April cannot be replaced and will be a new subscription counting towards the investor’s annual allowance.
  • Payments to the flexi-ISA will be counted firstly, as repayments of any outstanding flexible withdrawals made in the current tax year and secondly, as a subscription against the current year annual allowance.
  • There is no carry-over of either unused annual allowance or withdrawals between tax years.
  • Repayments of drawn funds may only be made to the account from which the associated withdrawal was originally made.
  • The full value of the ISA may be drawn, but withdrawals must not exceed the total value of the ISA (overdrafts are prohibited), even when the amount available for withdrawal is less than the total of current year contributions.
Online documents
Citi Japan and Europe Autocall Growth Plan – February 2023
Pershing documents

Pershing Securities Limited is the administration platform we have selected to operate the service.  For further information please refer to the enclosed Pershing terms of business document.

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