I have been very interested to read the comments of Colin Jackson at Baronworth when comparing the Chartwell AIG extra-income bond, which was launched on September 24, with the Investlife premier income and growth bond, which Baronworth have chosen to promote.
Mr Jackson states: “Chartwell's returns are too low. If you are going to risk capital, it is not worth doing so if the return is under the 10 per cent benchmark.”
The first time I heard Mr Jackson's comments,I assumed that he was being misquoted but this does not appear to be the case.
I accept that the headline rate on the Investlife product is higher than that on the Chartwell product. On the Chartwell product, it is 7.25 per cent (which grosses up to 9.06 per cent), whereas with Investlife, through Baronworth, it is 10.45 per cent. Our quoted rate is a net rate because our bond is based in the UK, whereas theirs is a gross rate because theirs is based in Luxemburg but I do accept that theirs is still the higher.
In terms of the risk, though, there is not a black and white line, with risky products on one side and non-risky on the other.
There are differing levels of risk and any sensible investor or adviser would weigh up the level of this risk with the potential return.
With the Investlife product, the investor's return of capital is linked to eight European investment sectors – banks, healthcare, energy, insurance, food & beverage, auto, chemical and media.
Unfortunately, the capital return is only dependent on the worst-performing of these sectors. The other seven sectors are excluded. I believe that for a £10,000 investment, with annual income being taken, if the worst sector has fallen by 20 per cent, then the investor will receive back only £4,875.
If this happens, I am sure that Mr Jackson can tell his clients that “if you are going to risk capital, it is not worth doing so if the return is under the 10 per cent benchmark.”
Chartwell Investment Management,Bath