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Newcastle bond links to five funds

Newcastle Building Society has created a guaranteed equity bond that is linked to the performance of five funds from different fund management groups.

The guaranteed five star bond offers 80 per cent of the average growth of the five funds over a five-year term, plus the return of investors&#39 capital whatever happens to the basket of funds. The funds are Credit Suisse US$ bond fund, Fidelity Funds European growth fund, Franklin Templeton mutual beacon fund. International Finance Development Capital Japan dynamic fund and Merrill Lynch offshore sterling trust UK fund. They are equally weighted in the portfolio.

To calculate the returns, the monthly average value of each fund is recorded during the first year of the term. This is compared with the monthly average value of each fund during the final year of the term and investors get 80 per cent of any growth.

Many guaranteed equity bonds are liked to one or more stockmarket indices, but returns are totally dependent on the way each index moves. Investors in the Newcastle bond can benefit from an actively managed basket of funds, with have the potential to outperform their benchmark indices.

The funds offer diversity in terms of region and asset class, since both equities and bonds are represented. However, some IFAs believe that if investors are so risk averse that they need full capital protection, investing in a basket of funds may not be the best place for their money.


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