There have been numerous attempts at replacing with-profits bonds. The product I like best is from Keydata. Its UK protected growth plan is totally transparent and is already winning much praise from leading investment IFAs.
Best Invest's John Spiers, who I greatly respect, says: “This novel product could be the 21st Century's replacement for with-profits, offering both transparency and liquidity. It will be particularly interesting to cautious investors approaching retirement and also to pension funds. Overall, it should produce equity-type returns but with considerably lower volatility.”
The product is an attractive combination of growth potential and capital protection. This is how it works. Investors' money is invested in securities where the returns are linked to two underlying components. Part will be invested in the FTSE 100 index through a low-cost fund but, unlike some index-tracking investments which only mirror the capital movements of the index, this fund reflects the total return by taking into account both capital and dividend income.
The cash element is invested in a highly-rated cash fund provided by Barclays Global Investors.
At present, the plan is invested 70 per cent in the FTSE 100 and 30 per cent in the Barclays fund but the proportions will vary according to market conditions.
This is a higher proportion of equity investment than most with-profits funds and the product should therefore outperform over a period.
Unlike with-profits funds where a market value adjuster can be applied, this product guarantees investors' assets at all times by maintaining a minimum return of 80 per cent of the fund's highest net asset value. This is a much better level of protection than all with-profits bonds except for some early bonds where the returns are guaranteed on particular dates.