The PFB guaranteed FTSE Hedge Index fund has a minimum investment of £10,000 and uses constant portfolio protection insurance to provide geared exposure to the index of up to 150 per cent when market conditions are good. When market conditions weaken, the CPPI model determines when exposure to the index needs to be reduced in favour of cash. This method allows the fund to potentially outperform the index in strong and weak markets.
If market conditions are so bad that the fund is entirely invested in cash, the fund cannot get back into the hedge fund market and investors will get only their capital back at the end of the term.
The fund does not have a quoted target return as this figure will depend on market conditions and how much exposure the fund has had to the hedge fund index. Currency hedging will be used to minimise the risk sterling-based investors would otherwise face due to movements in exchange rates.
Pinder Fry & Benjamin director Charles Fry feels this product meets the needs of retail investors who are keen to diversify their portfolio through hedge fund exposure, but who have been deterred by the regulatory environment, high minimum investments, worries about currency risk, risk to capital and complexity.
He believes retail investors will feel comfortable investing in a product which is linked to a FTSE index rather than a manager selected portfolio of hedge funds that investors do not understand.
However, investors should note that the PFB product’s charges and cost of the guarantee will reduce the fund’s return and the CPPI model used may not necessarily be as successful as expected.