Type: Capital-protected bond
Aim: Growth linked to a basket of five agricultural commodities comprising whet, corn, sugar, soybeans and Kansas wheat
Minimum-maximum investment: £15,000-no maximum, Isa £7,000, £7,200 for 2008/09
Term: Five years and six months
Return: 100% of the growth in the commodities basket at the end of the term
Guarantee: 90% of the original capital returned at the end of the term regardless of the performance of the underlying investments
Closing date: April 25, 2008
Commission: Initial 3.25%
Tel: 020 7861 0900
This plan from structured product provider Dawnay Day Quantum has been introduced to take advantage of the rise in agricultural commodity prices.
Looking at the plan’s market suitability Baronworth Investment Services director Colin Jackson says: “In view of the current uncertainty in the equity market, this asset class may be attractive to investors who wish to reduce their level of exposure to anything equity related or invest in an entirely different asset class.”
He feels that although the literature is attractively produced, the fact that it incorporate three different investments – the protected commodities accelerator 1X, the protected commodities dynamo and this one – means that it is lengthy. “It is written in plain English, but there is quite a bit to digest, particularly for those clients who have never invested in commodities,” he says.
Jackson observes that there is 90 per cent capital protection at maturity and 100 per cent participation in any increase in value in the portfolio – with no cap on the return. He regards both features as extremely attractive.
“Any returns are taxed as a capital gain which is a major plus point as most people do not utilise their capital gains tax allowance. It leaves the investor free to utilise his/her Isa allowance for something else,” he says.
Weighing up the commission, he feels that it is slightly more than the going rate, but he notes that only initial commission is paid, with no renewal.
Turning to the less appealing features of the plan Jackson says: “The nature of the asset – a portfolio of 5 commodities – is probably not very well known to the majority of investors so could be a turn-off.” He adds that there are no direct competitors to this product.
Summing up Jackson says: “This is an interesting product giving a high level of capital protection and attractive participation rate. For those clients that are prepared to wade through the literature and then invest in what is probably considered an unusual asset class could be well rewarded on maturity.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good