Friends Provident has established the stewardship safeguard optimiser fund, a unit-linked ethical fund that offers some protection to investors in Friends Provident's investment portfolio bond.
The fund is aimed at cautious investors with ethical investment principles. The aim of the fund is provide smoothed investment returns similar to with-profits by investing in an ethical portfolio - the Isis stewardship growth fund. Up to 70 per cent is invested in the underlying stewardship fund and the remainder in cash via the Barclays Global Investors liquidity plus fund, which invests in money market securities.
This investment split may shift daily, so when the market rises the equity exposure is increased by investing more into the stewardship fund. When the market falls, the equity content is reduced, with a higher amount held in the BGI fund. This active trading process is known as constant proportion portfolio insurance.
The stewardship safeguard optimiser fund will protect 80 per cent of the highest ever unit price if the market falls, but this is not a guarantee and could be reduced, or removed, in extreme circumstances.
The underlying stewardship fund is the oldest ethical fund in the UK and was introduced in 1984. It currently invests in holdings such as Vodafone, Tesco, Compass Group and the RAC.
The fund looks for companies that make a positive contribution to society and will avoid companies that harm society or the environment. For example, it would invest in a company that conserves energy or natural resources but would avoid companies involved in nuclear power.
The stewardship safeguard optimiser fund could be useful for ethical investors who are wary of stockmarket falls but the 80 per cent protection of the highest unit price should not be confused with a capital guarantee.
According to Standard and Poor's the Isis stewardship growth fund is ranked 46th out of 239 funds based on £1,000 invested on a bid-t0-bid basis with net income reinvested over three years to June 14, 2004