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Aviva defined returns reaches double figures

Aviva Investors has introduced a collateralised capital-protected Oeic, the Aviva Investors defined returns fund 10.

This fund is linked to the performance of the FTSE 100 for four years. It provides 22 per cent growth at the end of the term if the index is at or above its initial value. In this situation, investors will also receive a full capital return. If the index does not finish at or above its initial value at the end of the term, there will be no growth but investors will still get their capital back if the index does not fall by more than 50 per cent by the end of the term. Where it breaches this safety net, capital will be reduced by 1 per cent for every 1 per cent fall in the index.

Not all capital protected and structured products are collateralised. Collateralisation provides an added level of protection for investors who are worried about counterparty risk following the collapse of Lehman Brothers  A panel of three counterparties – HSBC, UBS and Royal Bank of Scotland – are rated A or higher by Standard & Poor’s and provide collateral to the value of the fund, in the form of government bonds with a minimum ”AA” rating. The fund would take ownership of these bonds if the counterparty goes bust.

Aviva says the challenge for investors in the low interest rate environment is how to generate returns without moving up the risk scale. It believes its new product can help by providing attractive returns relative to deposit accounts, with a level of capital protection and peace of mind through collateralisation.

Aviva’s backtesting shows there were no cases between January 3, 1984, when the FTSE 100 Index began, and  December 31,  2010 where the FTSE 100 fell by more than 50 per cent over any four or five-year period. This means the protection barrier would never have been breached if someone had invested during this time, but this does not mean it is impossible for a breach to occur and there is a chance that investors could end up with less than they had invested.


Billy Burrows, Director, The Retirement Partnership

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