According to Norwich Union, the traditional solution for investors who want equity returns with low volatility has been with-profits funds. But bas press and the necessity of lower bonus rates as a result of poor stockmarket performance has made with-profits less attractive to many investors.
Although Norwich Union believes with-profits have a part to play and is still active in this market, it is offering the active protector fund as an alternative to with-profits.
The fund is divided into two components. The active part of the fund invests in a portfolio of six Norwich Union funds – UK equity income, UK growth, UK index tracking, UK smaller companies, managed high income and corporate bond funds while the protected part invests in short-term cash deposits.
At launch the fund will invest 100 per cent in the active component but when the share price falls. Initially the active component will be made up of 60 per cnet equities and 40 per cent fixed interest.
When the funds share price is high, the active component will have the greater weighting, but this will be reduce din favour of cash deposits when markets fall. The protected price is backed by UBS through a derivatives-based contract and this makes it possible to protect 80 per cent of the funds highest share price.
Although this fund is innovative in its broader use of derivatives as permitted by Ucits III and its application of CPPI to a basket of actively managed funds, a potential drawback is that investors are tied to Norwich Union funds with no opportunity to access external fund managers.