Luxemburg-based company PanEuroLife aims to establish itself in the UK IFA market with the sterling guaranteed 5-year maturity fund. This unit-linked fund is available only through its pharos and pelf+ investment bonds.
The fund will invest in a portfolio of bonds and short-term deposits. This will equate to 20 per cent in government bonds, 75 per cent in corporate bonds with a minimum rating of AA and 5 per cent in cash deposits. The portfolio will be managed by Gartmore on PanEuroLifes behalf.
It was designed to appeal to cautious investors who are currently being bombarded with guaranteed products that are linked to stockmarket indices and baskets of stocks, but which may not have absolute capital guarantees.
Investors with between £5,000 and £250,000 are guaranteed a return of 5.5 per cent a year with this fund, which is taken as growth at the end of the five-year term. They will also get their original capital back in full.
The fund could be of interest to more cautious investors who need capital security and who do not want to dip their toes back into volatile equity waters. It could also appeal to investors who want a less risky investment within their pharos and pelf+ portfolios.
However, the difficulty this fund faces is being able to produce a yield of at least 5.5 per cent a year while excluding lower-rated bonds which have higher yields. Similarly, it would be difficult to maintain the target yield if some of the bonds chosen by Gartmore are later downgraded.