Kleinwort Benson Private Bank has established a capital-protected bond that provides exposure to equity, hedge fund and commodity indices over a three-year term.
The hybrid certificate is linked 30 per cent to the FTSE 100, 15 per cent to the S&P 500, 10 per cent to the Dow Jones Eurostoxx 50, 5 per cent to the Hang Seng, 5 per cent to the Korea stock price, 5 per cent to the Nikkei 5 per cent, 10 per cent to the Dow Jones AIG commodity and 20 per cent to the HFRX Global Hedge Fund indices.
The product is designed to offer a simple and cost-effective way to gain exposure to a diverse range of asset classes, some of which are illiquid and not generally available to retail investors.
In addition to a full capital return regardless of the performance of the indices, investors will receive 110 per cent of the growth in the basket of funds. To calculate the returns, the monthly closing levels of the indices are averaged over the final six months of the term and this is compared with the closing levels at the start of the term.
The benefits of this product are indirect exposure to wide range of asset classes and regions, which provides diversification without the risks to capital of direct exposure. But the averaging could also constrain growth as well as protecting investors from falls in the indices towards the latter stages of the term.
As the portfolio is weighted, investors will not be over-exposed to the spicier and higher-risk indices within the portfolio. However, this also means they could lose out to a degree if the indices with the lower weightings perform better than the higher weighted indices, despite the presence of averaging.
Finally, with a 50,000 minimum investment, the product is aimed at high-net-worth clients rather than the mass market, so may have limited appeal.