Meteor Asset Management has brought out a guaranteed equity bond linked to a range of asset classes through six stockmarket indices over a term of five years and two weeks.
The bond has equal weightings in global equities through the MSCI world index, property through the Epra Nareit index, government bonds through the iBoxx Euro sovereign Eurozone index, commodities through the Dow Jones AIG Commodities index, hedge funds through the HFRX global hedge fund ndex and finally UK equities through the FTSE 250 index.
Investors will receive 100 per cent of the growth in this portfolio and a full capital return regardless of the performance of the indices.
To calculate the returns, the closing level of each index is recorded at the start of the term and compared with an average of the closing levels over the final 12 months of the term. The growth in each index is measured as the difference between the two figures. An average is produced from the figures from all six indices and this produces the final level of return.
This product has put a capital-protected spin on multi-asset investing, which has been the year’s buzzword. It is based on the idea that diversification through non-correlated asset classes reduces risk in portfolios. The idea is that if some asset classes underperform, other asset classes should make up for this by outperforming. The good thing about this concept, and the Meteor product, is that investors are not relying solely on one or two asset classes so there should be something ticking over in the portfolio throughout the term.
Some investors may like capital protection because of the security it provides but if the asset classes perform in the non-correlated way that they are meant to, the diversification should preserve the original capital.
However, market performance in the light of problems in the US sub-prime mortgage market has shown that even multi-asset class portfolios are not immune, so some investors may think the protection is worth paying for even though in theory it should not be needed.