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Julian Gibbs

With-profits bonds issued by leading life insurance companies with strong

free-asset ratios or a big parent company have shown average returns over

the past five years of around 60 per cent.

This compares very favourably with most major unit trust sectors, where

only the average North American, technology and UK equity income trusts

have outperformed the average with-profits bond. All these sectors have

fallen over the past year.

With-profits bonds are a better bet for most people as they pay bonuses

every year. Taking into account the taxation differences, most higher-rate

taxpayers would have received better returns than the average UK income

trust, too.

Over five years, with-profits bonds outperformed the UK all companies, UK

smaller companies, global growth, UK corporate bonds, balanced managed,

Japan and Far East sectors.

North America was by far the best performing sector with a 91 per cent

increase over five years. Technology was not far behind at 81 per cent but

has fallen by 53 per cent over the past year.

The worst performing major sector was the Far East excluding Japan, which

fell by 21 per cent. With-profits bonds are, of course, much less volatile.

While with-profits bonds are unlikely to perform quite as well over the

next five years because of lower interest rates and lower stockmarket

returns, they are still likely to outperform most sectors with a much lower

downside risk.

The bonds I like best are those issued by Liverpool Victoria – Britain&#39s

biggest friendly society and the best performer of all, being up by more

than 75 per cent over the past five years – Standard Life, Scottish Mutual,

Norwich Union and Prudential, which is the market leader.


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