Type: Capital-protected Oeic
Aim: Growth linked to the performance of the FTSE 100 index
Minimum investment: Lump sum £10,000
Term: Five years
Return: 18.5% of original investment provided the index is at or above its initial value at the end of year two, 27.75% at the end of year three, 37% at the end of year four or 46.25% at the end of year five
Guarantee: Original capital returned in full at the end of the term provided the closing level of the index does not fall by more than 50% during the term
Charges: Initial up to 5%, annual 0.9%
Commission: Initial up to 3%
Tel: 02392 2660059
Citi has combined the features of funds and those of structured products within its Ucits III compliant autocall fund.
An autocall strategy is an early maturity, or kick-out feature. Citi’s fund has a five-year term that is dependent on the index being at or above its initial value at the end of years two, three four or five. Investors will receive predefined returns of 18.5, 27.75, 37 or 46.25 per cent respectively if the index performance meets this condition.
The fund also provides a degree of capital protection, with a full capital return payable on maturity provided the closing level of the index does not fall by more than 50 per cent during the term. If it breaches the protection barrier, investors will lose 1 per cent of their capital for every 1 per cent fall in the index.
Looking at how this product could be useful to IFAs and their clients, Fair Investment Company Investment Administration Manager Julie Smith says:“As more and more advisers use platforms, the fund’s availability through this route will make it easier for IFAS to consider this type of structure within their portfolio planning. As you can add more money to your initial investment or take money back out, it gives the adviser the flexibility to rebalance a portfolio if need be.”
Useful features that Smith highlights are daily liquidity and the collateralisation of the fund’s assets with G7 government debt securities, which she says substantially reduces the counterparty risk.
“The fund has a kick-out strategy which aims to deliver a competitive coupon of 9.25 per cent if the conditions are met, and also benefits from a built in 50 per cent safety net, which again reduces the overall risk of the fund.”
Smith believes the fund could be ideal for UK residents who have an offshore bond and are looking to hold additional assets that would not be considered highly personalised. She thinks the fund could help diversification and spread the risk between counterparties.
The way that the returns from the plan are taxed also gets the thumbs up from Smith. She notes that returns from direct investments will be subject to capital gains tax, not income tax, so investors can use any unused CGT allowance.
Turning to the less attractive aspects of the fund, Smith says: “The fund is available for direct investment, offshore bonds and Sipps and SSASs, but it is difficult to invest through an Isa, which is an obvious disadvantage.”
She adds that there is lack of clarity within the product literature on early maturity options compared with traditional structured product literature.
Identifying the main competition for Citi’s fund, Smith says: “Depending on the required level of risk, the competition could range from straightforward deposit accounts to corporate bond funds, cautious managed funds and not forgetting the more traditional structured product.”
Summing up Smith says: “This product has a genuinely innovative structure. It may be difficult to get your head round it at the start, but it is worth the time and effort.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good