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Product Matters

Newcastle’s guaranteed FTSE returnbond provides an interesting example of the way in which structured products can cater for both bulls and bears.

Further, it does not matter which camp you fall in as the product will give a positive return on the back of any market movement – either up or down.

An investor’s money is placed in a deposit account, with the interest return linked to the FTSE 100 index and no matter how you look at it, a guaranteed deposit-based structured product is easier for an investor to understand and be comfortable with than a protected or guaranteed product delivered in an offshore-listed investment company structure.

While from a marketing perspective I cannot see this product failing to attract attention, I am less convinced of the real value it offers. It is linked to the capital-only performance of the FTSE 100 index which over the past two years has staged an heroic performance, rising by over 50 per cent.

If you expect the total return from the UK market to be a more sedate 7 per cent annually from this point forward, this would imply that around 4 per cent a year from the index alone. In a rising market, just 80 per cent of the capital-only return is provided so an investor would benefit from just 3.2 per cent a year.

For cash Isa inves-tors, a better option might be to consider Halifax’s fixed-rate Isa saver account which offers a tax-free 5.7 per cent per annum for five years on a balance of 3,000. Overall, taking account of the pros and cons, it is thumbs up to Newcastle for an innovative product design.

James Dalby is head of investment strategy at Bates

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