Skipton Guernsey is taking the three-index approach with its five-year guaranteed growth bond.
This is a guaranteed equity bond aimed at investors who want growth from investing in the stockmarket, but who also want the reassurance of having their capital protected.
Over the five-year term the bond will be linked to the FTSE 100, S&P 500 and Eurostoxx 50 indices. The level of each index will be measured at the start of every year to see if they have risen or fallen. If all three have risen over one year then the investor gets a return of 8 per cent. However, if two have gone up and one has fallen, the investor will not get any return.
If the three indices rise for all five years then investors can get a maximum return of 50 per cent of any growth. If they have increased over any four years this drops to 32 per cent and over three years it falls to 24 per cent. The minimum return possible, even if all three fall over the five years, is 22 per cent plus the original capital.
Over a five-year period from November 26, 1996, to November 26, 2001, the FTSE 100 went from 4,068 points to 5,302 points, the Eurostoxx 50 went from 1,801 points to 3,766 points and the S&P 500 went from 1,169 points to 1,152 points.
The five-year guaranteed growth bond is similar to the capital safe bond from Newcastle Building Society. This tracks the FTSE 100, Eurostoxx 50 and Nikkei 225 indices over a five-year period, with the original capital guaranteed.
The Newcastle Building Society product offers up to 85 per cent of the average growth in the three indices, compared to the 50 per cent maximum growth from Skipton Guernsey. However, the minimum return from the capital safe bond is just the return of the original investment, while the guaranteed growth bond offers the original investment and the 22 per cent minimum return.