I believe that most with-profits bond investors should now cash in their bonds, even if the MVR penalties are substantial, unless within the next two years they can take advantage of guarantees of the full return of their capital plus accrued bonuses.
With equity markets likely to recover over the next year or two, it is only sensible to invest in funds which have large proportions of their assets invested in equities and also in commercial property, where the yields are high and the outlook is now attractive because of the recovery in the economy.
For longer-term investors, any funds which do not have at least 70 per cent invested in these two classes of asset are unlikely to do well, particularly as fixed-interest investments are likely to continue to show low returns.
The problem with most with-profits funds is that investors have been able to withdraw up to 7.5 per cent a year without any MVR being applied even though the underlying fund has fallen in value. This will, of course, affect future returns.
However, there is one with-profits fund that I do like. Liverpool Victoria's fund has over 75 per cent of its assets invested in equities and commercial property and only 20 per cent in fixed interest. It also has a new with-profits income bond fund for more conservative and elderly investors which has 40 per cent invested in property, 30 per cent in equities and 30 per cent in fixed interest.
Liverpool Victoria's long-term record is outstanding on its endowment with-profits policies. The yield to investors on 10-year policies maturing this year was 8.4 per cent a year tax-free against an average of only 3.9 per cent, with Scottish Widows giving a return of only 1.1 per cent, Scottish Mutual 1.6 per cent and Standard Life 4.1 per cent a year. My advice is stick with Liverpool Victoria.