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Newcastle makes its mark

Newcastle Building Society has brought out a second issue of the capital safe bond, a guaranteed equity bond that is linked to the FTSE 100, Nikkei 225 and Eurostoxx 50 indices.

The bond has a five-year term and to mark itself out from similar products, a loan back facility is offered. If investors need access to their investment during the term, money can be loaned back to them at a rate which is guaranteed to be 1 per cent below Newcastle&#39s standard variable mortgage rate.

Investors are guaranteed the return of their original capital however the indices perform. Any return on top of that is capped at 85 per cent of the averaged growth in the indices.

To calculate this, the starting level of each index is recorded on March 22, 2002, and an average is produced. The monthly average for each index is then recorded during the final 12 months of the term and a final average is produced. This is compared with the starting level and investors get 85 per cent of any rise, giving up some of the growth in return for the capital guarantee.

An illustration from Newcastle Building Society shows that the average growth in the FTSE 100 between November 1, 2006 and November 1, 2001 was 44.14 per cent. The Nikkei 225 fell by 38.99 per cent during the same period, while the Eurostoxx 50 rose by 150 per cent. This shows that the performance of the indices can vary, with the weakest index — in this instance, the Nikkei 225 — dragging down the returns.


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