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Product Matters

The ingenuity of our industry is as strong

as ever when we look at the plethora of new stockmarket-linked bonds. It

is vital to analyse each one and I will focus on NDF Technology Plus,

promoted as offering “all

of the thrills and none

of the spills”.

We have a capital guaranteed product over five years and every six months

the rise or fall in the Nasdaq 100 index is locked in. Crucially, the rise

is capped at 12 per cent but the loss is not capped (apart from the 100 per

cent capital guarantee). It can be argued that this Index now offers a very

good opportunity, particularly over five years for capital growth.

I now come off the fence. Do you want a technology investment capped at 12

per cent every six-monthly period from a volatile index, which, as we know

from the past, is capable of far greater than this and yet at the same time

we are fully exposed to losses that could potentially wipe out a number of

the 12 per cent gains?

Some of these bonds involve aspects of rocket science but investment

basics surely dictate that if your client wants a technology investment,

they take out an open-ended one. Over five years, it would be very unlikely

to fall, but they would get full upside potential and the flexibility to

come out when they wish.

I note with interest that the excellent analytical team at Future Value

Consultants gives this bond four out of 10, calling it “unexciting”.

In 2007, I will look at my technology investment and the NDF investors

will wonder why they have been drinking champagne without any bubbles.


Julian Gibbs

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