Citi Emerging Markets and Europe Income Autocall Plan - March 2023

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

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 achieve a return on your investment.  Even where there is capital protection, the deduction of fees and charges could mean you receive less than you invested.

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.

The Citi Emerging Markets and Europe Income Autocall Plan March 2023 has a start date of 31 March 2023 and a maximum six-year term, producing a potential income of 1.975% per quarter (7.9% per annum).  The income will be paid if both indices are at or above 75% of their start levels on the quarterly observation dates.  The first quarterly observation date is 3 July 2023.  It has an autocall/kick-out element on the second anniversary and quarterly thereafter if the worst-performing index is above its start level, which would terminate the plan and pay the final quarterly coupon.

This plan also has an element of capital security, whereby if the worst performing of the MSCI Emerging Market index and Euro Stoxx 50 index as of 5 April 2029 has not fallen by more than 35% from the start level on 31 March 2023, all the investor’s capital will be returned.

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 1 February 2023.  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.

Initial capital is not 100% secure with this structured product.  If at maturity on 5 April 2029 the worst performing of the MSCI Emerging Market index and Euro Stoxx 50 index are below 65% of their initial level, the initial capital returned will be reduced by any negative performance.  For example, if the Euro Stoxx 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.

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.

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 5 April 2029 corresponding to the product’s maturity’.  Please also read the KIID in relation to this statement.

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.

If you change your mind and do not wish to invest, please inform your Mattioli Woods consultant by 31 March 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.

The economic outlook, for much of the world, is currently overshadowed by rising interest rates, weakening demand and geopolitical tensions.  Geopolitical tensions are unpredictable, but interest rate and economic growth cycles do have a certain predictability about them.  As inflation continues to fall, we are likely to see interest rates stabilise and investors will likely position themselves for both interest rate cuts, and for an upward swing in the global economic cycle.  This may well favour cyclically-sensitive sectors of global stock markets, that will benefit most from a global economic recovery.  As ever, the timing is uncertain; given we are looking here at a (potentially) six-year timescale, we can say with some comfort that we should expect improvements as above in the first half of that period.

It is reasonable to expect companies represented in the Euro Stoxx 50 and the MSCI Emerging Market index to outperform in an improving environment, as outlined above.  The Euro Stoxx 50 index features the eurozone’s fifty most important companies, many of which are world leaders in their respective fields.   Consumer discretionary, financials and industrials dominate the index, all of which should benefit from improved business and consumer confidence picks up.

Growth in the emerging markets is often dependent on growth in the developed economies, sometimes with exaggerated effect.  Not only do exports of commodities and goods rise, but so-called ‘risk capital’ flows in, stimulating domestic demand growth in the emerging markets.  The effect is to consider emerging market stocks a leveraged play on the developed economies, which – after several years of weak performance – are attractively valued, historically. Positively, the proportion of growth stocks is much smaller than in, say, the S&P500 index, and is also less than in the MSCI World index.  The US dollar has been strong, and that usually adversely impacts emerging markets. If that strength ceases or even reverses, this is another potential plus.

Both indices also have growth sectors, such as tech, which may underperform over the coming years as their valuations are reassessed post-pandemic.  This, and the potential for the US dollar to continue to strengthen, plus the importance of China in the latter index, does mean that this is considered a slightly higher risk than recent structured product offerings.

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 Emerging Markets and Europe Income Autocall Plan March 2023, IDAD’s fee is not expected to exceed 1%, with Citi’s estimated fee of up to 0.93%.  The combined total of these fees cannot exceed 1.93% 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 £193.  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.

This product offers no FSCS protection.

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, consultants and 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.

Individual savings accounts (ISAs) are tax-efficient wrappers 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 we provided you with and to which we would refer you.

As mentioned, 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:

• ‘Flexible’ 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 withdrawn 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 flexible ISA will be counted first as repayments of any outstanding flexible withdrawals made in the current tax year and second as a subscription against the current year’s annual allowance.
• There is no carry over of either unused annual allowance or withdrawals between tax years.
• Repayments of withdrawn 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.

Pershing Securities Limited is the administration platform selected to operate the service.  For further information, please refer to the enclosed Pershing Terms of Business document.