THERE is no getting away from tracker bonds these days close on the heels of bonds issued by Irish Permanent, Irish Nationwide and the pension fund administrators, IPT Financial Services, are four more new issues.
The first is Guaranteed Equity Bond 2 from Riada Stockbrokers and ABN-AMRO Hoare Govett. This bond, which requires a minimum £5,000 investment guarantees capital and pays out a return so long as the two indices it tracks the S&P 500 and the FT-SE Eurotrack 100 - achieve zero growth, or higher, over at least two annual periods out of the four-year term of the bond.
For example, 20 per cent interest is paid if zero or better growth is achieved for the two annual periods; three periods of growth and it pays out 40 per cent gross; four periods and it pays out 50 per cent gross, or a gross annual return of 10.7 per cent or 8.2 per cent after tax.
That said, the same markets produced 40 per cent gross returns in the four years up to 1996/97 and Riada warns that while markets have performed well in recent years "the likelihood that a stock market correction, i.e fall, will occur sometime in the next four years is, in our view, quite high." This bond closes on May 23rd.
This bond closes on May 23rd.
The second bond is Guaranteed Equity Bond, Series 14 from First National Building Society. This bond is linked to the Nikkei 300 and the SMI, the Swiss Market Index and requires a minimum investment of £3,000 over either five years and 10 months or three years and six months.
Option one guarantees a return of capital plus a minimum gross return of 25 per cent (CAR 3.90 per annum) with a cap on earnings of 75 per cent of the initial investment. Option two offers unlimited growth potential. First National is equally confident that these two markets will achieve growth over the periods (the Nikkei, cynics say, can only go up).
This tracker closes on July 1st, one of the longest available closing dates.
Another product is Vantage Bonds I and II from MMI Stock-brokers with Woodchester Credit Lyonnais as the deposit taker. It requires a minimum investment of £3,000. What makes these two bonds different from all the others, says MMI, is that they allocate the amount designated to the markets they have chosen to track at the end of the investment period, not the beginning.
Vantage 1 tracks the Nikkei 300 and Eurotrak 200 indices and lasts for three years and nine months. Depending on the final outcome of the markets' performance, either 60 per cent or 40 per cent of the allocation of funds will go to one or the other and there is no cap on the amount you can earn from the markets' performances.
Vantage II tracks three equity markets over a five-year and six-month period - the S&P 500, the Nikkei 300 and the Eurotrak 200 with a 50/30/20 per cent weighting depending on the performance record at the end of the period. Once again, there is no limit on any final return. These bonds close on June 6th.
And finally there is the Growth Bond from Ulster Bank Investment Managers. This latest bond offers a guaranteed minimum return of 20 per cent gross (CAR 3.1 per cent) plus the chance to earn an annual bonus of 12 per cent for each of the six years of the investment term (i.e. a maximum of 72 per cent) on condition that both markets rise by 3 per cent or more in each of the six years. This bond closes on June 20th.
Tracker bonds continue to attract investors because of their underlying capital guarantee and their simplicity: you pay over your £3,000, £5,000 or £10,000 (most have fund limits ranging from £250,000 to £1 million), leave it for between three to six years and at the end of the period you get your money back plus a return that reflects the deposit rate offered by the bank that is securing your capital and whatever growth has been achieved by the stock market that is being tracked by a percentage of your fund.
