Premier Fund Managers
Premier Protected Property Plan – Limited Editions No 36
Type: Capital-protected bond
Aim: Growth linked to the performance of the Premier Pan European Property Share Fund
Minimum-maximum investment: £5,000-£1m
Term: Six years
Return: 100% of the growth in the underlying fund at the end of the term
Guarantee: Original capital returned in full regardless of the performance of the underlying fund
Closing date: June 29, 2007, June 22, 2007 for Pep/Isa transfers
Commission: Initial 3%
Tel: 0845 130 1122
The Premier protected property plan is a capital-protected bond linked to the performance of the Premier Pan European property share fund for six years.
AWD Chase de Vere research manager Justine Fearns says: “With protected products, it is important to understand and be happy with the fund provider, fund manager and the investment process and philosophy. It is also just as important to understand and be happy with the protection on the fund in terms of the structure and the financial strength of the issuer. With regards both of these requirements, the Premier Protected Property Plan stacks up well,” she says.
According to Fearns, Premier Asset Management has a good track record in producing good quality competitive structured products and it is also a growing fund management business so is well placed to produce this type of product.
“Fund manager Alex Ross has a strong track record in managing portfolios of property securities both during his time at Premier and in his previous role at Aberdeen. He aims to run a relatively low volatile, diversified portfolio by investing across a range of property sectors throughout Europe, including the UK, and has done so well to date,” she says.
The product offers 100 per cent participation in the Premier Pan European Property Share fund and 100% capital protection if the plan is held the full six year plan to maturity, which are very good terms in Fearns’ view.
“If the plan isn’t held until maturity, which really should not be the case, then investors would get the market value of their investment back, which could be lower than they put in. They may also have to wait up to 15 days for the refund of their capital. Although a pain, neither of these issues are out of kilter with protected products and I would expect to see that in the small print,” she says.
Fearns notes that some investors prefer a five-year term. “However, a six year term probably enabled Premier to offer 100 per cent participation and 100 per cent protection, which are ideal headline numbers,” she says.
She adds that the plan has 13 months’ averaging at the end. “This means that if the fund rockets away and performs well, the performance of the plan will not be as strong but likewise if the fund performance heads down at a rapid rate, the return on the product is protected a little,” she says.
An important point highlighted by Fearns is that the issuer of the medium term note that provides the underlying capital protection on the product is an “AA” rated institution. “This is almost as good as it gets and indicates that the protection is very secure and that there is a much lower chance that the protection will fail,” says Fearns.
Investors can access the plan through a Maxi Isa, Isa or Pep transfers and pension business so it offers good accessibility to a wide audience.
“Premier has produced some good literature for the plan, which is a plus point. It’s amazing how poor some product literature is so it’s nice to see a company produce easy reading material that covers all the important points in a relatively down to earth manner,” says Fearns.
The charges are implicit, so are built into the product structure. “A lot of people like this as it feels like you aren’t being charged anything but they have to remember that there is no such thing as a free lunch. Adviser remuneration is standard,” says Fearns.
Discussing the potential drawbacks of the product Fearns says: “Is there a real need to protect a fund? In an appropriately asset allocated portfolio the answer is arguably no but investors do seem to like protection for some asset classes and product areas.”
She thinks it is important to consider the cost of the protection. “This can be difficult to assess as charges on structured products are generally implicit rather than explicit, although the literature will always state a maximum initial charge figure that may be taken from the investment amount – in this case it’s 7 per cent. To get an idea of the overall cost, it’s a case of looking at the terms around the plan, so the likes of the participation rate, level of protection and term of the plan.”
Fearns also mentions the redemption/transfer fee of £50 plus VAT and again highlights the potential 15-day wait for monies withdrawn before the maturity date. “These points could be seen as a negative but they are run of the mill when it comes to structured products,” she says.
Another point to consider is that any growth linked to the underlying fund will not include any reinvestable income, so the growth seen within the product will not mirror exactly the growth on the unprotected underlying fund. “Again, this is standard with protected products and is more something to be aware of rather than a negative. There is a bonus interest rate for early investors of 3 per cent. Companies do not have to offer this but most do. It’s not great but at least it sort of covers inflation,” says Fearns.
There are few other protected property share funds in the market to provide direct competition to Premier’s offering but Fearns thinks an alternative could be Newcastle Building Society’s guaranteed property Bond 15. This is a five-year product offering 120 per cent participation on the House Price Index, but this is retail property rather than commercial so is definitely not a direct comparison.
“Depending on risk profile, an investor could just invest in the fund itself or other similar funds. However, it’s important to understand that it is not right for all monies and is definitely not a replacement for bricks and mortar commercial property funds,” concludes Fearns.
Suitability to market: Average
Investment strategy: Good
Adviser remuneration: Average