Newcastle Building Society's guaranteed blue-chip bond is a combination of a five-year guaranteed equity bond with a two-year fixed rate high-interest account.
The guaranteed equity bond element is linked to the performance of 20 global blue-chip stocks, including McDonalds HSBC and Nokia. Investors must place 75 per cent of their capital in this element and the return of the original capital is guaranteed, regardless of the performance of the stocks. They will also get up to 50 per cent growth.
To calculate the growth the prices of the 20 stocks are recorded on June 16, 2003 and an average is taken. This is compared with an average figure produced during the final 14 weeks of the term. Any rise or fall in each individual stock during each week is combined to produce an average and this figure is capped at 50 per cent. A final average is produced from the valuations of all 20 stocks and this is compared with the starting value.
The remaining 25 per cent of investors' capital goes into the high-interest account element. This is fixed at 7 per cent gross a year for two years and no withdrawals are allowed during the fixed-rate period.
The Newcastle product sets itself apart from similar products such as Northern Rock's Fifty:Fifty by being linked to a basket of stocks rather than an index, but this also makes it more complicated.
Also, a handful of stocks that perform badly will have a greater influence on the final return within basket of stocks than within an index. However, stocks that outshine their peers could enhance returns which would be watered down if held within an index.