Type: Capital-protected Oeic
Aim: Growth linked to the performance of World Alternative Energy index and cash through the Adequity WAEX strategy
Minimum investment: Lump sum £1,000
Investment split: 100% linked to the Adequity WAEX strategy
Isa link: Yes
Pep transfers: Yes
Term: Six years
Return: 80% of the growth in the Adequity WAEX strategy
Guarantee: Original capital returned in full at the end of the term regardless of the performance of the Adequity WAEX Strategy
Charges: Initial up to 3%, annual 1.5%
Commission: Initial up to 3%^
Tel: 0800 032 8535
Societe Generale Adequity has brought out the new energy protected fund, a capital-protected Oeic that applies a dynamic allocation strategy to the World Alternative Energy index and cash. This strategy is similar to constant proportion portfolio insurance (CPPI) but differs in that switches between the asset classes depend on volatility, not performance. If it switches 100 per cent into cash, it can move out again.
BestInvest Brokers head of communications Justin Modray says: “SG Adequity has come up with one of the more interesting launches so far this year. Being cynical, it is clearly jumping on the ‘climate change’ bandwagon. This bandwagon now seems to running on a super-charged V8 – bio-fuel obviously – rather than the limp 2-stroke of a few years ago. But SG Adequity nonetheless deserves credit for innovation,” he says.
Modray believes that in simple terms, investors are being asked to sacrifice 20 per cent of World Alternative Energy Index exposure in return for 100 per cent capital protection. This is achieved by using dynamic allocation techniques that reduce exposure to the index during periods of high volatility. “However, this trade off looks poor value when you consider that the Dawnay Day quantum protected commodities accelerator VII plan offers 165 per cent exposure to a basket of commodities over six years, twice as high as SG Adequity. The underlying assets are a little different, but volatility is quite similar so it is not an unfair comparison,” says Modray.
This brings him neatly to his final point. “Alternative energy has a high correlation to the oil price shorter term and the underlying technologies/companies are unlikely to come to full fruition during the six-year investment term of SG Adequity’s fund. On this basis Dawnay Day’s offering, which includes exposure to energy, is a far more attractive investment proposition,” he says.
Modray concludes that investors who want specific exposure to alternative energy would do better to buy the Merrill Lynch New Energy investment trust and hold for the very long term.
Suitability to market: Average
Investment strategy: Good