This is a structured product that tracks the performance of a weighted basket of four indices. The FTSE 100 index comprises 60 per cent of the basket, while the DJ Eurostoxx 50, S&P 500 and Nikkei 225 indices represent 20, 15 and 5 per cent respectively.
Investors will receive income of 7.5 per cent a year, depending on the performance of the indices. If all four indices are more than 2.5 per cent above their initial value at the end of the first year, investors will receive the 7.5 per cent income payment. If the indices do not meet this condition, no income will be paid that year but investors have the chance to earn it back in the second year.
If all four indices are 5 per cent above their initial values at the end of year two, investors will receive an income payment of 15 per cent and will start the following year with the potential to earn 7.5 per cent income. If this does not happen, the income opportunity rolls forward, with the potential to earn 22.5 per cent income in year three if all four indices are 7.5 per cent above their starting values and so on. Overall, investors have the opportunity to earn 45 per cent income across the first six-years.
Although this fund is a structured product, it does not provide capital protection. At the end of six years investors will receive 100 per cent of the average growth in the weighted index basket.
One of the benefits this fund has over a conventional tracker is that it caters for income investors through enhanced dividends, giving them a fair idea of the potential income they could receive.
However, the main risk is that one or more of the indices could be below the threshold at the end of any given year, which wipes out the opportunity for dividend payments so everything is riding on the next year. With a conventional tracker fund, a dividend yield would be payable even if performance was poor, although it would be low.