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Widows fences off two new with-profits funds

Scottish Widows is anticipating the Sandler review by offering two new ring-fenced growth and income with-profits funds using derivatives.

The income with-profits fund will be a smoothed managed bond fund, invested entirely in bonds. The growth with-profits fund will have a traditional equity-based asset mix.

The final bonus will be the difference between the yield on each fund and its annual bonus.

Both funds will include a separate sub-fund, managed to zero, using derivatives to meet the guarantees. Widows will make money from fund management charges.

Widows says the sub funds&#39 hedging strategies will allow it to maintain the core asset mix when investment conditions change.

The bonds will be available from July 1 for IFAs, with direct sales and pension business to follow.

Widows says the charges – which range between 1.3 per cent and 0.7 per cent – mean the funds can be used for stakeholder. The company also hopes to transfer its existing book to the new methodology.

The company believes the products will enable it to steal a march on the competition by taking advantage of the 100/0 structure of the company&#39s £20bn with-profits fund since demutualisation.

Chief executive Mike Ross, who is ABI chairman, says: “I believe the steps Widows is taking should fit well with the likely direction of the ongoing Sandler review and the FSA with-profits review.”

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