Type: Capital-protected bond
Aim: Growth linked to the performance of a portfolio of industrial metals and energy-related commodities
Minimum-maximum investment: £15,000-no maximum, Isa £7,000
Term: Six years
Return: 190% of any growth in the commodities portfolio
Guarantee: 90 per cent of original capital returned in full regardless of the performance of the underlying investments
Closing date: April 20, 2007
Commission: Initial 3.5%
Tel: 020 7861 0900
Protected Commodities Turbo IV is a capital-protected bond linked to the performance of a portfolio of industrial metals and energy-related commodities. It provides 190 per cent of the growth in the commodities portfolio and a 90 per cent capital return at the end of the term.
Chadney Bulgin partner Bruce Bulgin regards this as an unusual concept in that there have been many structured products linked to a range of stockmarket indices but this one is linked to a basket of commodities.
“Up until now many investors have been unable to participate directly in commodities but the Dawnay Day fund provides access with relatively low minimum sums – £15,000 outside the shelter of an Isa. It is also suitable for Sipps and SSASs as well as for direct investments,” says Bulgin.
He points out that the investment is spread equally across a range of commodities including natural gas, oil, copper and lead. “Demand for all of this appears to be rising and may well continue to do so according to the fund’s promoters owing to economic growth especially in China and India,” he says.
Bulgin highlights the degree of financial protection of up to 90 per cent of the initial investment as a good feature. “As with other products of this type, capital protection is from medium term notes issued by AA rated organisations – so the risk of not getting at least 90 per cent of the investment back is small,” he says.
Discussing the negative aspects of the product Bulgin says: “As with any product of this type there is a huge degree of inflexibility – it is a six year term and early encashment is likely to result in a capital loss. All of the gain is taxable in the year of encashment, so for direct investors there is a potential gain to be accounted for.”
Bulgin also points out that no income payable and while there is some protection of capital, taking account of inflation and returns from deposit accounts, the repayment of 90 per cent of the investment in six year’s time would equate with a substantial loss.
“There is also an argument that applies to all products with guarantees that if you want to link an investment to an index of a market, then buy the market warts and all, because over a six-year period there is a fair chance of making a gain – especially if Dawnay Day’s blurb to be believed,” says Bulgin. He also feels that a six-year term has inbuilt inflexibility in that it might be advantageous to sell in five year’s time, but this is not possible.
“Competition will come from other structured products linked to other indices as well as commodity funds. But as a relatively new option for investors, there is far less competition than is the case with many other new investment options,” he says.
Summing up, Bulgin says: “This is an attractive new option for investors and their advisers to consider which gives access to commodities albeit in a relatively inflexible manner.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Good