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Julian Gibbs

Some months ago, I wrote about an alternative to with-profits bonds. This was Scottish Life International&#39s protected worldwide with-bonus fund, which invests across the four major stockmarkets as well as the Nasdaq 100.

In the first quarter of this year, it produced a return of 3.37 per cent despite the fact that world stockmarkets were very flat. None of the four main stockmarkets achieved a return above 3 per cent, with the Nasdaq managing a slightly better return of 5.25 per cent.

The one market that fell over the period was the Japanese market but even here the protected worldwide with-bonus fund paid a partial bonus of 1.24 per cent.

I did not make it entirely clear in my last article that it is possible to lose money on these funds if they fall by more than 5 per cent in a quarter. But a bonus will still be paid unless every one of the five funds falls by more than 5 per cent.

While this means that these bonds are slightly more risky than with-profits bonds, at least the extent of the losses will be known whereas, in sharp stockmarket falls, most with-profits funds&#39 actuaries would be likely to apply a market value adjuster.

If this performance is repeated over a year, which is of course not guaranteed, then a gross return of around 13.5 per cent would look very attractive against the maximum returns now being paid by with-profits bonds of around 7.5 per cent net.

This innovative type of investment has been very popular with IFAs, who have already invested over £80m on their clients&#39 behalf. I think this is an excellent innovative product at a time when stockmarket outlook worldwide is fairly dull.


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