Royal Bank of Scotland International has absorbed the trend for funds of funds with its first guaranteed equity bond to be linked to a basket of funds.
The five star bond is linked to five offshore funds Fidelity European growth, Julius Baer Japan leading stock, Credit Suisse equity fund (Lux) USA, Merrill Lynch Mercury offshore sterling trust UK and JPMorgan Feming USD global bond over a five-year term.
Royal Bank of Scotland International offers around three guaranteed equity bonds each year, but until now these have been linked to a stockmarkt index, a basket of indices or a basket of shares. The five star bond diversifies across sector and fund management groups like a fund of fund, with the added bonus of capital protection.
Investors get their original capital back whatever happens, but any growth depends upon the performance of the funds. To calculate the final return, an average is taken of the funds' monthly values and this is compared with an average taken over the last 12 months of the term.
The bond could provide a temporary haven for stockmarket investors who may have suffered during the recent downturn. It could also appeal to building society investors who are looking for a stepping stone into direct stockmarket investments. However, the price paid for capital protection is 25 per cent of the growth in the funds, which could put some investors off.
According to Standard & Poor's, all five funds are ranked first quartile based on £1,000 invested on a bid-to-bid basis with net income reinvested over three years to April 22, 2002.