PREMIER INCOME & GROWTH II
Type: Capital guaranteed bond.
Aim: Income and growth linked to the performance of eight Dow Jones Europe Stoxx sectors.
Minimum investment: Lump sum £10,000.
Place of registration: Luxemburg.
Investment split: 100 per cent linked to eight Dow Jones Europe Stoxx sectors.
Guarantee: Capital returned in full at end of five year term providing the level of the worst performing sector is the same or higher at the end of the five-year term than the start.
Isa link: No.
Commission: Initial 3 per cent.
Tel: 020 8731 3804.
Bonus rate 6.5
Company's reputation 4.6
Past performance 4.0
Product literature 7.0
The panel: Andy Burnett, Partner, Bucklands,
Alan Buswell, Proprietor, Glenburn Financial Services
Simon Clements, Director, S&G Financial Management.
The Investlife premier income and growth bond II is an offshore bond that is linked to the performance of eight industry sectors across Europe including the UK over a five-year term. Investors can choose annual income of 10 per cent, quarterly income of 2.3 per cent or growth at 60 per cent at the end of the term.
Discussing the market suitability of the bond Clements says: “It is another in a sequence of structured products offered by several companies seeking to provide fixed income or growth over a fixed term with a degree of capital protection based in derivatives.” Burnett says: “There are a limited, but regular, supply of similar products offering high income and capital return linked to some stockmarket index or other. They are all available over a fixed offer period, in this case six weeks, unless oversubscribed.”
Buswell views the product from a different perspective. He says: “It is fairly unique in that the fund value is dependent on the worst performing sector on the last day of investment, rather than an average over the previous six months or so. In a word, risky.”
Identifying the types of client the product could attract Burnett says: “Those seeking high income and who are also prepared to take high risks. Not for the faint-hearted or granny's last £10,000.” Clements says: “It is primarily suitable for relatively cautious investors seeking income or growth, with an element of capital security. This often appeals to older investors.”
Buswell says: “I would certainly not recommend this product for the risk-averse investor, but more for a client who does not mind taking a chance on achieving some good growth as part of an overall portfolio. However, as maximum growth is capital at 60 per cent over five years, this plan rather defeats the object as well.”
Considering whether the product is likely to offer any marketing opportunities Buswell says: “Once everyone has read the small print I think marketing opportunities will be rather limited.” Burnett says: “This type of product lends itself to direct mail and those advisers with large client costs. However, the high income offered may obscure the downsides and some investors may proceed with appreciation of all the risks.” Clements regards it as a good opportunity for investors who require higher income or growth than is likely to be available from savings accounts or bonds, without all the risk to capital inherent in full equity exposure.
Highlighting the strong points of the bond Burnett mentions the high income it provides. Clements says: “Ten per cent is a high income, paid without deduction of income tax, for a full five-year term. A return of the original investment is guaranteed, irrespective of market falls. The income or growth payment is linked to the performance of market sectors.” But Buswell offers a few words of caution. He says: “Obviously income of 2.3 per cent in this low interest rate environment always looks very tempting, but beware of the damage this may do to the capital at maturity.”
Discussing the bond's drawbacks, Burnett says: “It is not available for Isas, there is no monthly income facility, it is linked to stockmarket sectors and it has a high minimum investment.” Clements also points out the product cannot be held within an Isa. Buswell says: “The fact that the true value of the investment will only be realised on the day after it matures is somewhat of a lottery.”
Looking at how flexibile the product is, the panel are not impressed. Burnett says: “Its flexibility is poor - less than other providers.” Buswell says: “There is no flexibility, this is an either or scenario.” Clements says: “The bond is not designed as a flexible product, although the early surrender penalty of 2 per cent is not unduly punitive.”
Assessing the company's reputation Clements says: “Investlife is a Luxemburg-based insurance company specialising in capital-protected products. The company may not be well-known in the UK, but investor protection for Luxemburg insurers is very secure. Its previous income and growth bond was well-received in the UK.”
Burnett regards it as poor to average and thinks it is better known on the continent than in the UK. Buswell says: “To be honest I had never heard of it before this product was announced and unless it can devise something a bit better I don't expect to hear of it ever again.”
Examining Investlife's past performance record Burnett says: “It is too soon to tell. It has only been in place since 1994 and it only offers protected stockmarket products.” Buswell was unable to find any past performance record and Clements thinks it is irrelevant to the product.
Nominating ideas for which products will compete with the bond, Clements says: “The select income and growth bond from Scottish Life International offers 8.65 per cent or 11 per cent gross annual income with the different levels of capital protection over a three-year 2 month term. NDF Administration offers a five-year product with 9 per cent gross income, which is Pep and Isa eligible, with direct investment subject to CGT rather than income tax.”
Burnett says: “Similar products from G E Life, NDF Administration and others. Investlife has the highest headline income. Corporate bonds are more suitable for high income investors.” Buswell says: “Competition will come from those providers which average performance over the three to six months prior to maturity.”
Assessing the commission Burnett thinks it is in line with the market.” Buswell thinks it is fair and reasonable and Clements thinks it is standard.
Reviewing the product literature Burnett thinks it is generally good, easy to read and understand. He also feels most of the terms are clearly explained. Buswell thinks the product literature is fairly standard for this type of product. Clements says: “The literature is clear and concise for what may be seen as a complex product by investors who may not be familiar with derivative based contracts.”
Summing up Buswell says: “In reading the brochures I see this is a newly-formed company which means this is an offshore company paying all proceeds gross. Tax implications need to be carefully assessed before taking out this plan.”
Burnett concludes: “The link to the lowest of eight stockmarket sectors for the capital return should rule this product out for all but the highest risk investor. The high income, however, may persuade many who shouldn't to go ahead anyway. I won't be recommending it, but I won't recommend other similar products either.”