Type: Capital-protected Oeic
Aim: Growth linked to the performance of the FTSE 100 index
Minimum-maximum investment: Lump sum £1,000-no maximum, Isa £500 – £10,680
Term: Five years
Return: 17% growth plus original capital at the end of year two providing is at or above its initial value, 25.5% growth plus capital at the end of year three, 34% growth plus capital at the end of year four or 42.5% growth plus capital at the end of year five
Protection: Original capital returned in full at the end of the term provided the index does not fall by more than 50% during the term without returning to at least its initial value
Closing date: September 23, 2011, August 23, 2011 for Isa transfers
Commission: Initial 3%
The defined growth fund 1 is the first in a new range of structured products from Aviva Investors. The fund is linked to the FTSE 100 for up to five years and provides a return equivalent to 8.5 per cent for each year it remains invested. It can mature early from the second year, through an auto-call or early kick out feature, provided the index is at or above its initial value at that point.
Investors may receive only their original capital if the index is never at or above its initial value on any anniversary from year two. But they will only do so if the index does not fall by more than 50 per cent during the term without returning to at least its initial value. Otherwise, capital will be reduced by 1 per cent for each 1 per cent fall in the index.
Looking at how the fund could be useful to IFAs and their clients, Baronworth Investment Services director Colin Jackson says: “This is a kick-out plan dependant upon the FTSE 100. The literature is very well presented and easy to understand. The potential return of 8.5 per cent a year is highly attractive.”
Jackson adds that investments can be made within an Isa wrapper, but direct investments will be subject to capital gains tax. “ As the vast majority of taxpayers do not utilise their CGT exemption, it could be better for investments to be made as a direct investment, subject to limits, saving the Isa allowance for something else,” he says.
There are six counterparties involved in this fund, all with a Standard & Poor’s rating of at least A. Jackson says: “This certainly spreads the default risk. The fund has been launched when world markets are in turmoil. It could be said that this is an ideal time as there is every prospect that the fund will kick out in two or three years time, thus producing excellent returns.” He feels that the adviser remuneration of 3 per cent initial commission is in line with the market.
Considering the less appealing features of the fund, Jackson says: “There is nothing about the product that I do not like.” He feels there is no direct competition for the fund at present.
“There is a mass of kick-out products to choose from dependant on the FTSE 100 but this is the only one I can locate where there are six counterparties,” he says.
Summing up, Jackson says: “As mentioned earlier, this could be an ideal time for any structured product linked to an index, particularly the FTSE 100.” But he adds that trying to predict how the index will perform over the coming years would be gazing in to a crystal ball.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good