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
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
The bonds I like best are those issued by Liverpool Victoria – Britain's
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.