Man Investment Products has introduced a fund of managed futures and hedge funds constructed as a Bermuda-based capital guaranteed bond.
Man AP strategic series 1 is available in two currency denominations, euros and dollars, although investors may choose a combination of the two. The target return is between 14 per cent and 16 per cent and investors are guaranteed at least the return of their original capital by 2012 for US dollar bonds and 2013 for Euro bonds. If the bonds perform well, the guarantee will increase accordingly.
The bond will invest mainly in managed futures, with a smaller amount invested in hedge funds. Managed futures invest in futures contracts, which fix a price for the buying and selling of goods to be delivered on an agreed date in the future. It often relates to the trading of precious metals, oil, jet fuel and shares.
Since the buyer is not taking immediate delivery of the goods, a deposit is put down to secure the fixed price. The contract can then be traded, with futures traders gambling on whether prices will rise or fall in the future.
The bond will also invest in equity hedge and arbitrage hedge fund strategies. Equity hedge involves long and short selling, while arbitrage involves buying convertible bonds and selling the underlying investments short.
Futures and hedge funds are risky because they depend on the fund manager making the right decision at the right time, whatever way stockmarkets and interest rates are going. This product is likely to suit institutional investors or sophisticated high-net-worth clients who want capital security in case the gamble fails to pay off.