This capital-protected Sicav is linked to the performance of a basket of 16 asset classes. The basket comprises equities across the UK, US, EuroZone, Japan, Australia, China, India, Brazil and Russia; UK, US and German government bonds, US liquid investment grade bonds, US aggregate investment grade bonds, US liquid high yield bonds and emerging market bonds.
The fund does not invest directly in the asset classes. Instead, it invests in cash, cash alternatives and derivatives which track the performance of the asset classes. This part of the portfolio reflects the reinvestment of dividends or interest generated by the asset basket and cash holdings, and not all protected funds do this.
The capital-protection provided works through a derivatives contract with Commerzbank, which acts like an insurance policy. Skandia pays premiums to Commerzbank for the derivatives contract which creates a protected price, so that the fund will always be at least 80 per cent of its highest ever price.
Asset allocation within the basket is reviewed monthly by the Skandia Investment Group. The balance between the exposure to the asset class basket and cash is also adjusted monthly depending on the volatility within the asset basket over the last 20 days. When volatility is higher than 8 per cent, exposure to the basket of assets will be reduced in favour of cash and when volatility is lower, exposure to the basket of assets is increased while cash is reduced. Up to 100 per cent can be held in cash, while maximum exposure to the basket of assets is 150 per cent as it can be geared by 50 per cent.
This fund may appeal to investors who are concerned about market volatility, but not all investors will understand the volatility strategy and the capital protection provided through the protected price.