Kleinwort Benson Private Bank is offering IFAs a capital-protected fund linked to a basket of 16 actively managed funds chosen through its fund selection service, elite.
Elite rotator provides a choice of 100 per cent or 80 per cent capital protection. Protecting 100 per cent of capital will provide 100 per cent of the growth in the underlying funds, while 80 per cent protection offers a geared return of 110 per cent.
Kleinwort Benson has allocated 50 per cent of the underlying portfolio to UK equities, 20 per cent to sterling bonds and 10 per cent each to US equities, European equities and Japanese/Asian equities. The funds are chosen using asset allocation and fund selection techniques based on qualitative and quantitative analysis. They include funds from Credit Suisse, Threadneedle, GAM and Martin Currie.
Although the portfolio will contain 16 funds, the performance of 10 funds will count towards the final returns at any one time. For example, there are four funds in the basket providing UK equity exposure but only three will make the portfolio. However, an annual rotation system means that the remaining fund is placed on a reserve list to replace a fund if it does not perform well. The annual review also allows new funds to replace those in the basket if necessary.
Although a structured product linked to a basket of funds is not new, the rotation system offers a fresh approach. It operates like a fund of funds so investors are not locked into poorly performing funds.
The initial charge of up to 6 per cent, including 4 per cent IFA commission, could be regarded as high for a structured product. However, investors are not investing directly into the underlying funds so they are spared the additional charges levied by a fund of funds.