Legal & General is building on the theme of capital protection with the introduction of the second tranche of its protected portfolio.
Protected portfolio II has a five and a half year term, which is six months longer than the previous edition. It is linked to a portfolio of 30 stocks that are taken from the largest companies in the UK. These include companies like GlaxoSmithKline, Next, Dixons, Reuters and Vodafone.
Unlike the previous tranche, there is no place for British Airways since its share price has suffered since September 11.
The return investors receive is based on the individual performance of each of the 30 stocks. The value of the stocks is measured at the beginning and end of the term. The sum of these figures is divided by 30 to produce an average which becomes the final level of return. But whatever happens, investors will get at least their original capital back.
The capital protection feature may appeal to cautious investors who are getting poor returns from building society accounts and who are keen to make their first steps into stockmarket investing.
However, the final return can be difficult to calculate and as it is based on an average, investors will not get the full benefit of shares that perform exceptionally well. On a positive note, this also means that the effects of shares that perform badly will be limited.
Another potential problem is that the product produces no income and this could put off some investors.