Given the events of the past year or two, I bet you didn’t expect the Royal Bank of Scotland to be pioneering further financial innovation. But unlike so many other “innovative” structures, its UK Accelerated Tracker fund deserves full marks for simplicity and transparency.

It’s the first of a series of listed structured products being developed by the bank’s capital markets division, which contains large parts of the old ABN Amro business – and takes RBS into a market currently dominated by SocGen. Oil and gold tracker funds are likely to follow, but I reckon the UK Accelerated Tracker will be the most popular. In fact, I’d go as far as to say that, if you were looking for a geared play on a recovery, this could be the vehicle for you.

Before I explain my enthusiasm, let me remind you why I consider many retail structured products to be a bit dubious. My biggest objection is that most are hugely complex, involving all sorts of ifs and buts, such as caps on total returns and index participation rates that are too difficult to understand. You may be attracted by the prospect of, say, 150 per cent participation in the rise of an index . . . only to discover that your return is capped at 30 per cent.

You also need to be very careful of how “protection barriers” are defined. Will you lose your initial investment if the index you’re tracking breaches the product’s downside protection barrier intraday, or at the end of any trading day, or only at the product’s maturity?

In my experience, even adventurous investors prefer simple structured products that let them track any recovery in the markets in a geared way. And that’s why I think they will regard the RBS UK Accelerated Tracker positively.

First off, it’s simple. Over the next five years, you get 200 per cent of any rise in the FTSE 100. There is a cap, but it is set at 1.9 times the index’s initial level – which means you get twice the gain of the FTSE all the way up to just under 8400. I don’t think this is a big problem – let’s be honest, we’ll all be very happy if the FTSE gets anywhere near 8400.

Second, it provides capital protection as long as the FTSE 100 doesn’t fall more than 40 per cent from an initial level of 4200 – which equates to a barrier at 2520. I think this is OK, although I’d have been happier with 2000. I also like the fact that this protection barrier is observed only at maturity – if it is breached during the five-year term but later rises back above the barrier, you still get back your initial investment.

Third, it carries minimal counterparty risk. RBS is now 58 per cent controlled by the government – which means it is unlikely to be allowed to go bankrupt.

Fourth, it is a stock market-listed product so you can buy it via any stockbroker in lots of £100, with a bid-offer spread of 1 per cent – which means you can trade the product in real time and do not have to stick with it for a full five years, as is the case with so many IFA-originated structured products.

But is it a good investment right now? I’m still a bear so I’m not the best person to talk to about the timing of this launch. However, I can see the markets rising in the next five years. So the key question is: where will these returns come from?

If you look at the analysis of stock market returns by Elroy Dimson and Paul Marsh at the London Business School, or by Ed Easterling at Crestmont Research, you see that, over the long term, total returns come from three different sources: the actual dividend payout; the growth in the dividend payout (and therefore the growth in earnings); and the expansion and compression of share price ratings – that is, changes to the price/earnings (p/e) ratio.

This last component is hugely important. As investors become bearish, the price they’re willing to pay for a share, relative to the company’s earnings, decreases – they demand lower p/e ratios and more dividend protection. As they become more optimistic, the p/e ratio they’re willing to buy at increases, and thus share prices increase.

So the RBS product is effectively a play on this change in this cycle – you don’t get the dividend stream but in bull markets most of the return over five-year cycles comes from that ratings expansion.

Will we now see this play out on the FTSE ? I’ve analysed a series of five-year periods on the UK stock market from 1955 through to 2009, using data from the BarCap Equity-Gilt study.

Over the 49 individual five-year time slices, the average compound five-year return was 72 per cent. Only five of those 49 time slices resulted in a net loss, 12 of the five-year periods returned between 1 and 50 per cent, and 13 of the five-year periods returned more than 100 per cent.

This suggests to me that ratings expansion is a very powerful factor in market recoveries – potentially good news for the Accelerated Tracker. I’ve even built a simple spreadsheet showing potential returns from the RBS product compared with a cheap FTSE 100 exchange traded fund – if you want a copy, e-mail me.

Does this make me want to buy the RBS product? Hand on heart, I’d have to say the timing isn’t perfect. And even if it was, I’d look at matching this product with another “structured” fund, namely a covered call income fund such as the BNP Paribas UK High Income investment trust.

adventurous@ft.com