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Meteor swings in line

Meteor Asset Management has brought out the pendulum commodities plan, which aims for growth linked to a basket of five equally weighted Standard & Poors Goldman Sachs commodities indices. These are the S&P GSCI Agriculture Excess Return, S&P GSCI Energy Excess Return, S&P GSCI Industrial Metal Excess Return, S&P GSCI Livestock Excess Return, S&P GSCI Precious Metals Excess Return.

The plan has the potential to provide returns for investors if the commodity indices rise or fall over a term of six years and two weeks. At the end of this period, investors will receive a full capital return along with a minimum return of 15 per cent growth, regardless of the performance of the commodities index basket.

In a rising market, the fund will also provide 100 per cent of the first 50 per cent growth in the indices if the basket grows by at least 15 per cent, plus 125 per cent of any growth in the indices above 50 per cent. In a falling market it will provide returns equivalent to 50 per cent of any fall in the basket below 30 per cent.

To calculate the returns, the closing levels of the indices in the basket will be recorded on October 26, 2007 and the average closing price over the last twelve months of the term. The averaging is designed to protect from market falls, but the potential drawback is that returns could be restricted in rising markets.

According to Meteor, the commodities indices contained in the basket should grow in value due to increased wealth in Bric countries. It says previous under-investment in infrastructure is likely to raise prices for metals and energy, while greater consumption in agricultural and livestock should also lead to price rises.

The plan may be useful for investors who are looking to diversify their portfolios and who are looking for the comfort factors of capital protection and modest returns during market falls. However, the pricing of structured products dictates their limitations, so that the index basket must fall by 30 per cent before investors will benefit from a fall.

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