The four risk-graded secure index portfolio funds- – defensive, conservative, cautious and balanced – comprise different weightings in six index funds managed by BlackRock. These are the UK equity, UK fixed interest, North American equity, European equity Japan equity and Far East equity index funds. BlackRock’s funds were chosen because of their low charges and low tracking error, which means fund performance, will stay in line with the index it is tracking.
MetLife believes asset allocation is the most important element of returns over the long term. It works closely with Morningstar to ensure that the index portfolio funds contain the right mix of index funds for each risk profile.
The index portfolio funds were designed for investors who are looking for active management of a lower cost portfolio of passive funds and a guarantee. This guarantee ensures investors will get their original capital back with the opportunity to lock in any gains made until three months before their 75th birthday through the trustee investment plan or after 10 years through the investment bond.
MetLife concedes that guarantees are nothing new, but says traditional guarantees mean reducing exposure to equities so investors face a straight choice to make between security and capital growth. MetLife’s index portfolios differ from traditional guarantees in that they enable investors to enjoy security with the potential for capital growth.
As the index portfolio funds are also available without the guarantee, it is easy for advisers to break down the annual management charge. All the index portfolio funds have a 0.2 per cent annual fund management charge, but the cost of the guarantee on top of that will vary as the higher the risk profile, the higher the cost of the guarantee. An annual charge of 0.5 or 1.1 per cent for the wrapper product will also be payable.
Investors in these funds will not be paying the higher costs of two levels of active management or blindly following the direction of the markets as the asset allocation is actively managed. However, passive funds do have their limitations and some investors may prefer a portfolio of funds with the potential to beat an index.