Credit Suisse First Boston
Global Titans Tessa Plan
Type: Capital protected Tessa only Isa.
Minimum-maximum investment: £5,000-£9,000.
Investment choice: 100 per cent in shares listed on the Dow Jones
Global Titans index.
Term: Five years.
Guarantee: Capital returned in full at end of term.
Return: Up to 55 per cent at end of term.
Closing date: January 31, 2002.
Commission: Initial 3 per cent.
Tel: 0870 2416414.
Suitability to market 6.3
Investment strategy 6.0
Past performance 7.5
Company's reputation 7.6
Product literature 5.3
The panel: Barry Greening, Proprietor, Greenridge, Roy Rutter,
Principal, Aptitude Financial Planning, Ralph Stather, Proprietor,
Retirement Options (Wearside).
Credit Suisse First Boston has introduced the global titans Tessa
plan, a capital protected Tessa only Isa that invests in 50 companies
in the Dow Jones global titans index.
Looking at how the product fits into the market Greening says: “This
is rather a complex product which is linked to 50 of the world's
Rutter says: “The number of Tessa only Isas is small, so there is
room for one or two more here.”
Stather says: “The plan is another extension of the private capital
sector and slots in between purely deposit accounts (especially cash
mini-Isas) and bonds and equities funds like investment Isas. The
plan offers some capital guarantees as well as possibly higher gains
than a deposit account. These gains come at the expense of flexibility
Addressing the type of client that the product is suitable for Rutter
says: “This is for the holder of a maturing Tessa who is happy to
move from a deposit-based investment to an equity-based one, given
the present low interest rates offered by deposit-taking institutions.
However, a client using his Tessa to generate income would not be
attracted by this product.”
Stather identifies two types of client. He says: “This is for clients who
want a high rate of tax-free income for five years and are willing to risk
the erosion of capital value by inflation.
“It is also for clients seeking capital increase from tax-free interest
with the likelihood of higher-growth than from using cash Isa
products but who are unwilling to accept nominal loss because of
Greening says: “This is for those Tessa clients who have maturing
contracts and are looking for a more adventurous plan than deposit
Identifying any marketing opportunities Stather says: “This could be
aimed at clients with maturing Tessas who want to maintain £9,000
in a tax-free account, but who are worried about the present volatility
Rutter says: “It's an alternative that can be offered to holders of
maturing Tessas, but I think the opportunities are limited. There may
be some transfer opportunities for holders of existing Tessas who
see this as a good time to put further funds into the equity market.”
Singling out the strong points of the product Greening says: “There is
the ability to withdraw 10 per cent tax free every year and the capital
guarantee. There is also the balance between guaranteed products
and healthy returns after five years.”
Rutter says: “The strong points include the 100 per cent capital
protection for the full term and the potential growth option is
competitive against similar products. As a Tessa only Isa it also
provides the opportunity to invest up to £9,000 outside of an investors
general Isa allowance. Finally clients can see at a glance what
stocks they are investing in.”
Stather says: “I like the five-year term, which is long enough for
reasonable market growth. Also, the return is not dependent on the
level of growth, just avoiding a drop.”
Moving on to the drawbacks of the product Rutter says: “To ensure
capital protection the money is required to be in the product for the full
five years. Not everyone who has already a Tessa for 10 years will
want another five-year lock-in. It is linked to a basket of stocks and
can be disproportionately scuppered by just one bad stock in one
basket. I prefer plans such as this to be linked to an index.
“Also, everything hinges on stock performance on the final year,
rather than measured over any part in time in the five-year span of the
product. A fall of an individual share in the last year could very
adversely affect income under that option.”
Stather says: “A drop in value of just one stock kills return in that
particular basket. Each basket includes companies in a spread of
sectors, such as information technology, media and banks. If one
sector collapses, even temporarily, in the last year of the investment,
every basket could be affected. Also the growth is capped and an
investor taking income could end up with only £4,500 if it is devalued
by inflation over five years.”
Evaluating the investment strategy Greening says: “This is complex
and is linked to a basket of 50 shares. These stocks are linked in
groups of 10 and the worst performers must not shed more than 33
per cent of its initial value.”
Stather says: “The strategy is a bit complicated and the client is going
to be most worried in the fifth year. Earlier growth could count for
nothing. Splitting the investment into five baskets increases the risk,
because there is no averaging mechanism. One failure invalidates
the performance of the other companies in each basket.”
Rutter says: “The five baskets contain a good mix of blue-chip
companies but I am not sure that the percentage of US names and of
telecoms and technology is as low as I would have liked. Clients will
recognise the many of the stocks included.”
Looking at the reputation of Credit Suisse First Boston Stather says:
“It has a solid reputation and its managers read the economic
situation well. After languishing for several years, changes in the fund
management team have produced excellent growth, particularly from
equity income funds.”
Rutter says: “The company is better known by Joe Public and its
reputation is solid rather than first class.”
Greening says: “It is secure and experienced in this market, rated AA
by Standard & Poor's and AAB by Moody's.”
Moving on to the product literature Rutter says: “I was disappointed.
This is a complex product, so plain, snappy literature is not easy, but I
feel that this is an overlong brochure.”
Greening says: “The literature has simple colouring, but the
information contained within the literature is complex and well set
Stather says: “It is very detailed and useful if you have some
experience of this area. It might put off a new investor who previously
had a standard Tessa.”