View more on these topics

Balanced view needed of bonds v mutual funds

It is important that advisers consider the changes to capital gains tax in respect of the bond versus mutual fund debate.

In Money Marketing recently, Ian McLeod’s article attempted to shed some light on this. However, it is not surprising, for a represen-tative of a company selling a vast amount of bonds that his table would show life bonds as being more attractive in 17 out of 30 scenarios, while only one favoured mutual funds.

There was a major flaw in the assumptions. When comparing the performance of both products, an 8.5 per cent return on equities and a 6 per cent return on fixed interest was used. This does not take account of the difference in net returns between both options.

For example, the last three-year annualised return up to April 1 for Invesco Perpetual high-income fund was 13.63 per cent, while the same fund within Standard Life’s capital investment bond returned only 11.1per cent (source: Morningstar). This is a difference of more than 22 per cent and has taken account of the annual expenses.

In addition, the Invesco Perpetual corporate bond fund returned 2.18 per cent a year in the same period, with the same fund in the bond providing only 1.02 per cent a year, which is less than half of the mutual fund’s return.

There is a danger that life companies, while running scared of the potential consequences of lower bond sales, try to use a broad brush to promote the benefits of bonds over mutual funds. There have been quite a few articles published recently.

I had anticipated that this would happen right after the autumn pre-Budget announcement.

It may be wise for life companies to remember that quality advisers are already well aware of the comparisons, having made their own analysis, and will welcome no less than a balanced view.

Paul Scarff
Chartered financial planner Managing director Accountants Financial Services (Scotland) Glasgow

Recommended

Open doors to closed books

Recent research by Ernst & Young has identified that there is over £250bn of assets in closed funds.

Home loans down by third on 2007

The Council of Mortgage Lenders says the number of loans taken out for house purchase in each of the last three months was more than 30 per cent down on the same period last year. It predicts this decline will continue throughout 2008.

EC set for agreement on auto-enrolment in GPPs

The European Commission has informally agreed that emp-loyees can be auto-enrolled into group personal pensions when personal accounts are introduced in 2012, Money Marketing understands.

Cru leads alliance to create national IFA

Cru Investment Management director Jon Maguire is launching an alliance forum of adviser firms which aims to become a national IFA in three years.

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com