Aim: Growth for different maturity dates by investing in cash, money market instruments and derivatives linked to the performance of fixed income securities and equities
Minimum investment: Lump sum £250
Place of registration: Luxemburg
Term: Up to 30 years
Investment split: 100% in cash, money market instruments and derivatives linked to the performance of fixed income securities and equities
Protection: 100% of the fund’s highest fund price locked in
Charges: Initial up to 5.25%, annual 1.75%
Commission: Subject to negotiation
Tel: 020 7678 8409
ABN Amro has launched the Capital Protected Lifestyle Fund 2010-2035, a range of structured products with an asset allocation mix tailored to suit each maturity date.
Michael Philips proprietor Michael Both thinks it is interesting that this Sicav is being marketed under the ABN Amro brand rather than the group’s better-known Artemis label.
He says: “Although ABN Amro is no slouch at fund management, this range is not in any way aiming to add value by competent stock selection. The aims are risk and liability management which makes it unusual in the retail arena.”
From the outset the concept sounds well thought out to Both, who thinks it is exactly what many clients who previously would have bought With Profits or something like the Skandia Guaranteed Pension Fund were hoping for. “As those not yet suffering memory loss know only too well, what they got was not always exactly what they expected. IFAs need to be extra vigilant to ensure clients fully understand what the funds are realistically likely to achieve and what the costs and benefits are compared to alternative strategies, no easy task. In this respect, not coming from an insurance company is a distinct advantage, since public perception of that industry is not at an all time high.”
Both thinks that ABN Amro has used the Ucits and Sicav rules to issue a range of maturity dates so clients can select any year from 2010 to 2035 at which their guaranteed minimum value will apply.
He explains: “The funds are only aiming for capital growth. So while the EU Savings directive applies, withholding tax is unlikely to be a drag under present rules and the funds might be particularly attractive for retirement planning within a Sipp, unsecured pension or alternatively secured pension as well as a Pep transfers or Isas where a minimum fund value is sought at a specific point in the distant future.”
He adds that trustees could similarly find these characteristics helpful in meeting their sometimes conflicting obligations. “ I suspect that the product could be very attractive to intermediate and more experienced investors,” he says.
Considering the potential downsides of the fund range Both says: “Patience is not a virtue practiced by many retail UK investors and although the prospectus repeatedly states that these are designed as long-term commitments, I fear some clients may bolt at the first whiff of a market correction and will be unhappy to find just how large the discount applied by the market could be if they wish to redeem.”
He notes that the underlying investments are mostly complex derivatives including over-the-counter swaps and thinks it is unrealistic to expect a typical retail investor to understand how these work or to grasp the importance of liquidity. “I suspect they may struggle to reconcile the term protected in the title with the volatility of the net asset value. ABN Amro is careful not to even hint at the “G” word except in relation to the maturity date, and IFAs must be equally meticulous otherwise the FSA could be only too ready to encourage assisted fraudulent claims from people who will swear blind they were repeatedly told the value was guaranteed never to fall – which it most certainly is not,” he says.
Both suggests the closest competitors are probably the Fidelity Wealthbuilder Target Funds which have a similar aim but very different process. He also suggests lifestyling funds from insurance companies such as Scottish Life Managed Strategies and Scottish Equitable Lifestyle options and thinks Skandia Protected portfolios might appeal to certain clients.
Both concludes: “ABN Amro clearly informs investors that all investments involve risks and there is no assurance that a Fund will achieve its investment objective. The plan is governed by Luxembourg Law and the risk factors are written to be read by a responsible adult, presumably who understands the meaning of “caveat emptor”. The UK FSA would have wanted piffle worded not to alarm a baby and then blamed the distributor if anything frightening like a share price change happened, so I guess UK based IFAs had better add the standard codswallop for their own protection.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good