Type: Capital-protected bond
Aim: Growth linked equally to the performance of the Artemis income, Schroder UK mid-250, New Star UK alpha, Norwich property trust and Invesco Perpetual UK corporate bond funds
Minimum-maximum investment: £3,000-no maximum, Isa £7,000
Term: Five years
Return: Assured return – the greater of 20 per cent of original investment or 50% of the growth in the underlying portfolio, absolute return – 80% of the growth in the underlying portfolio, averaged return maximum protection – 110% of the growth in underlying portfolio, averaged return strategic growth – 220% of growth in underlying portfolio
Guarantee: Assured return – Original capital returned in full along with 20% of original investment at the end of the term regardless of performance of underlying portfolio, absolute return and averaged return maximum protection – Original capital returned in full at end of term regardless of performance of underlying portfolio, averaged return strategic growth – 80% of capital returned at end of term regardless of performance of underlying portfolio
Closing date: October 15, 2007
Commission: Initial 3%
Tel: 0118 956 3186
Skandia’s protected portfolio investment range provides capital growth linked to an equally weighted portfolio of five externally managed funds with varying degrees of capital protection and return over a five- year term.
Informed Choice joint managing director Martin Bamford believes this product appears to have been designed with some the historical criticisms of protected investment products in mind. “Investors will benefit from the reinvestment of dividends which is an important feature missing from the majority of protected investment products based on an investment index,” he says.
Bamford feels that exposing 40 per cent of the portfolio to non-equity investments is potentially a good move, as it will provide increased diversification which is likely to appeal to the type of investor who seeks protected investment products.
“Moving away from an index and towards funds as the base component of this product also increases diversification, resulting in around 300 underlying company investments rather than the typical 100 obtained from an investment index,” he says.
Turning to the potential drawbacks of the product Bamford says: “Investors need to be aware of the potential impact of averaging on their eventual returns. The potential impact of this factor is partially reduced within the final two product options which only average over the final year of the investment term.”
In Bamford’s view, the protection on offer from these products is only ever as good as the financial strength of the underlying institution. “In this case the investor is buying preference shares in Sienna, which is based in Guernsey. It will invest in debt and other financial contracts from a range of institutions with A+ or higher financial strength ratings.
Identifying products that could compete with Skandia, Bamford says: “The protected investment market is starting to get more crowded as providers take advantage of investor nervousness caused by the recent stock market turbulence. Because of the often short-lived subscription periods of these products, investors need to take care not to feel rushed into making a decision.”
Bamford points out that the Egg guaranteed equity bond offers 125 per cent of FTSE 100 growth after five years with 100 per cent capital protection. “It comes with a minimum investment of only £1,000 which is a third of that required to invest in the Skandia product,” says Bamford.
Summing up Bamford says: “The 4 per cent gross interest on offer to investors between the clearance date until the investment starts on October 29, 2007 is, quite frankly, miserly. Skandia could have offered a much better interest rate given current market conditions.”
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average