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Pick and mix accelerated returns from Blue Sky

Blue Sky Asset Management has brought out a second issue of the asset allocation accelerated growth plan, a capital-protected bond that provides geared returns linked to the investor’s choice of up to four stockmarket indices.

Investors can choose either a model portfolio, which is equally weighted to all the indices, or a tailor made portfolio that allows any asset allocation weighting between the indices.

The plan has a six-year term and provides options that are linked to the performance of the FTSE 100, S&P 500, Dow Jones Eurostoxx 50 and Topix indices. For all options, investors receive 10 times the growth in the index subject to a 60 per cent cap, but there are different returns for any growth above 60 per cent. The US option pays 125 per cent of any growth above 60 per cent, while the UK, Europe and Japan options pay 175 per cent, 200 per cent and 275 per cent respectively.

Soft capital protection of 50 per cent is also provided, which means that investors get a full capital return at the end of the term unless the indices fall by more than 50 per cent during the term and do not recover by the end of the term. If this happens, investors will lose 1 per cent of their capital for every 1 per cent fall in the index.

Returns are based on averaging over the first three months and last six months of the term. This means that any volatility affecting the stockmarket before maturity can be even out to lessen the impact of any falls. However, it also dilutes the impact of positive performance that may occur towards the end of the term.

On a positive note, the geared returns, soft capital protection and flexible asset allocation could be seen as attractive by some investors. However, flexibility across the index options and different participation rates for growth up to and beyond 60 per cent could be seen as features that make the product too complicated.

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