View more on these topics

Newcastle bond can rise if FTSE falls

Newcastle Building Society is offering a bond with returns linked to the FTSE 100 which can deliver better returns if the market falls.

The FTSE guaranteed ret-urn bond offers investors the opportunity to hedge against a market slide by paying 80 per cent of any positive growth in the FTSE 100 over the product’s five-year term and 100 per cent of any fall but as a positive return capped at 25 per cent.

The product is structured so that if the FTSE falls by 25 per cent, investors get 125 per cent of their original capital while the market would have to rise by 31.25 per cent to deliver the same return.

The only real negative for investors is if the market moves sideways, in which case, they will still get back 100 per cent of their capital but inflation will have hit the cash in real terms over the bonds’ five-year term.

The bond, available from April 12, is structured as a building society account so it is subject to income tax. Minimum investment is 1,000.

Chelsea Financial Services bond manager Matthew Woodbridge says: “This is taxed as income, not capital gains, which is less attractive. We are seeing hedging on the downside entering the mainstream if building societies are doing it. I am just not sure if their clients will understand it.”

Recommended

Farrow’s view

It was of little surprise that the split-capital investment trust settlement was finally agreed on Christmas Eve – it seemed destined to be that way.

Talkback

Will Prudential’s move to establish an independent committee to oversee its with-profits fund restore confidence in the product?

Waivering over PI

The FSA’s waivers for professional indemnity insurance, introduced two years ago, have come to an end with the onset of the insurance mediation directive last Friday.

Investment Forum

Position Portfolios for a Changing China, Accelerating Disruption and More Political Discourse Is China an asset class? Why Investors’ Understanding of China is Changing How is disruption changing the way we invest? Established Ways of Doing Business Are Being Challenged What to Watch: Why politics matters more than ever in 2017 Key takeaways: Despite volatile […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment