Type: Capital-protected bond
Aim: Growth linked to the performance of a basket of natural resources
Minimum-maximum investment: £7,000-no maximum, Isa £7,000
Term: Six years
Return: 100% of the first 25% of the growth in the basket plus 100% of any growth in the basket over 100%
Guarantee: Original capital returned in full regardless of the performance of the underlying investments
Closing date: October 12, 2007, September 26, 2007 for Pep/Isa transfers
Commission: Initial 4% or initial 1.25% plus renewal 0.5%
Tel: 0207 747 7400
The natural resources enhanced return plan is linked to the performance of a basket of natural resources for six years. This basket comprises 20 per cent Brent crude oil, 20 per cent copper, 20 per cent nickel, 20 per cent zinc and 20 per cent exposure to four utility companies. Investors will receive a full capital return at the end of the term plus four times the growth of the first 25 per cent, plus any growth above 100 per cent.
Examining the positive aspects of this product, Capital Trust Financial Management partner Bruce MacFarlane says: “The natural resources enhanced return plan provides IFAs and investors with exposure to a basket of commodities with 100 per cent capital protection if held to maturity after six years.” He adds that global energy and commodity prices have risen sharply over the last number of years and returns for investors who caught this cycle early have proved excellent.
MacFarlane points out that commodity markets tend to be much more volatile than other more traditional markets and in the past would only have been considered appropriate for the more sophisticated or higher risk investors.
“With its 100 per cent capital protection, the natural resources enhanced return plan opens the commodity market to clients who in the past may have been considered unsuitable and excluded due to their lower risk tolerances.”
The literature is clear and well presented according to MacFarlane. He thinks the adviser remuneration, with its option for renewal commission, is good when compared with its market peers.
Considering the potential weaknesses of the product MacFarlane says: “As commodity prices tend to be volatile and provide for exaggerated returns, I see little need to have accelerated returns, especially when investors are expected to tie their capital up for a six-year term.
“One would assume that without an upside performance lock in or ratchet, investors could potentially experience accelerated negative returns as well.”
Scanning the market for possible competitors MacFarlane says: “The fund is relatively unique with its capital protection but the capital protection is more of a marketing ploy to introduce more cautious investors to a market which in reality they should probably be avoiding in the first place. With the strong return from the commodity markets, more and more commodity funds are being launched including a diverse range of exchange-traded funds. So the choice for IFAs and their clients is diverse.
MacFarlane concludes: “It is a fund which will certainly appeal to some IFAs as it can easily be marketed to their clients.”
Suitability to market: Average
Investment strategy: Average
Adviser remuneration: Good