Type: Capital-protected bond
Aim: Income linked to the performance of the FTSE Epra Europe index
Minimum – maximum investment: 10,000-£2m, Isa £7,200, Isa transfers £7,500-no maximum
Term: Six years
Return: 8% income a year or 0.65% income a month
Guarantee: Original capital returned in full provided the index does not fall by more than 50% without returning to at least its initial value
Closing date: July 15, 2008
Commission: Initial 3%
Tel: 0845 009 1805
Meteor Asset Management’s property income plan provides income of 8 per cent a year or 0.65 per cent a month. The return of the original capital is linked to the performance of the FTSE Epra Europe index.
Bright Financial Services sales director Paul Breaks notes that this five-year investment is designed to provide a fixed annual or monthly income, with the capital return being based on the performance of the FTSE Epra Europe index. Direct investments into the plan are subject to income tax.
“Income is not dependent on the index and is payable at the rate of 8 per cent a year or 0.65 per cent a month. Capital is returned in full at maturity provided the index is more than 50 per cent of its opening Level at the close of any days trading during the investment term,” says Breaks. He adds that money invested will be used to acquire securities issued by a major financial institution with a current rating of at least A+ from Standard & Poor’s.
“Epra stands for the European Public Real Estate Association, which represents the publicly traded real estate sector in Europe. Its members are Europe’s leading property companies, investors and consultants that together have more than £240bn of real estate assets,” says Breaks.
The index measures the capital performance of share prices of listed property companies in the UK and Europe. “The index acts as a performance measure of the UK and European property market, including commercial property holding and development,” says Breaks.
He observes that the income level is clearly higher than can be obtained from cash deposits and he believes it is likely to remain so. “The product is okay for clients requiring a high income who are prepared for capital loss,” he says.
Turning to the potential drawbacks of the plan Breaks says: “What I don’t like is that it is a bit too opaque for my liking. If the index falls below 50 per cent of the starting index level at any time, which is highly possible, and it does not recover to the starting level, the capital is reduced on a one for one basis. For example, if it is 10 per cent down at the end of five years, this means a 10 per cent reduction in capital.”
In Breaks’ view, given the current association of the word securities with the credit crunch, he can think of easier times to sell this product. “Dividends are also not paid out and A+ is not overly reassuring when it comes to credit ratings,” he adds.
According to Breaks, other structured products will provide competition for this plan. He concludes: “The play is a property one with a high income but there are too many downsides for me. If you cant fully explain it how can you recommend it?”
Suitability to market: Average
Investment strategy: Average
Adviser remuneration: Average