This is a capital-protected bond that is linked to two property-based indices and a property-based exchange traded fund for a term of six years.
The iShares Dow Jones US real estate index fund aims to replicate the performance of the Dow Jones Real Estate index. The Tokyo Stock Exchange real estate investment trust index comprises all real estate investment trusts quoted on the Tokyo stock exchange age, while the FTSE Epra Public real estate index contains the most heavily traded real estate stocks in Europe.
The returns are based on 110 per cent of the average performance across the indices and ETF, which will be equally weighted.
Investors will also receive a full capital return regardless of the performance of the indices and ETF.
To calculate the returns, the level of each index and the ETF is measured at the start of the term – November 7, 2006. An average of readings taken across over the final 12 months of the term will be added together then divided by three to give an overall average, upon which the final return will be based.
Investors can make withdrawals of at least £5,000 during the fixed term, but this will be subject to the payment of an access fee.. The access fee cannot be calculated in advance as it depends on how long the bond has left to run, the Bank of England base rate at that time and the amount withdrawn. However, the access fee could be high in relation to the amount withdrawn so is potentially not worthwhile.
Most structured products that provide exposure to property are focuses on the UK through the Halfix House Price Index, so this product is unique. Some structured products may be linked to one or two of the indices selected by Product Innovations, but also provide exposure to broader equity markets such as the FTSE 100 or S&P 500.
The aria bond could appeal to investors who want the diversification benefits of exposure to global property shares and the expanding Reits market. However, the use of averaging may constrain growth, particularly as it is applied not only to both indices and the ETF during the final year of the term, but also across the regions during the final calculation.