Life office with-profits bonus cuts have been blown out of proportion compared with the slump in equities over the past three years, according to Bates Investment Services.
Head of research James Dalby says that despite big falls in bonuses, many with-profits policies are providing a significant buffer against the bear market, with total returns falling by as little as a third of those posted by stockmarkets.
He gives the example of the FTSE All-Share index which has seen 10-year total returns plummet by 54 per cent between January 1, 2003 and 2002. In comparison, returns on Norwich Union's with-profits bond fell by just 18 per cent over the same period.
Dalby also points out that in sectors most closely aligned to with-profits, such as the Investment Management Association's active managed and balanced managed sectors, bonds such as NU's still come out on top.
He says a £10,000 bond investment would have grown by nearly 90 per cent to £18,972 over the 10 years to January 2003 while funds tracking the active managed and balance managed sectors would have grown by only 55 per cent and 61 per cent respectively.
Dalby concedes that not all bonds perform as well but he expects the stronger life companies to continue to insulate investors from the worse of the bear market.
He says: “Everyone is jumping up and down about bonus cuts but it is important for IFAs to put some perspective on the cuts yet to come.”
NU senior actuary Rob Kerry says: “We still believe with-profits represents a good deal for investors.”