Goodbody launches new actively managed tracker

Goodbody Stockbrokers has launched a new investment fund which it is marketing as "Ireland's first actively managed tracker investment".

Like most tracker bonds, the fund guarantees all of the original sum invested.

But instead of selecting a number of indices or a basket of shares and investing in them for the full term, the Goodbody tracker reviews and potentially changes what it has invested in every six months during the five year, nine months term.

The fund, which will remain open until June 30th, is aimed at investors with minimum funds of €50,000 - higher than the typical €5,000 or €10,000 minimum investment required for most insurance company bonds.

Goodbody Stockbrokers says it is getting involved in the tracker market because three years of successive declines in the stock market has made its normally more adventurous investor clients more cautious.

"The whole investment market is much less tolerant of risk. It goes in cycles, but we're in that position where people's memories of the bear market are very vivid," says Mr Martin Kane, director of execution and trading. "People are tending to put an increased weight in capital guaranteed products."

The initial basket of shares will be composed from five sectors: banks, non-cyclicals (such as household goods), financial services, retail and healthcare.

After six months, the mix will be reviewed. "All sectors don't rise and fall at the same time. The market is not homogeneous," says Mr Kane. "The challenge is for us to ensure that we're in the right market at the right time."

If the stock market outlook is poor, some of the fund may be held in cash for part of the term.

Mr Kane claims its review policy makes the tracker a landmark product, describing it as a mobile phone with text messaging ability compared to one without it.

Financial adviser Mr Ian Mitchell of Towry Law agrees that the product is unique and praises a feature where returns are locked in. However, he cautions that the product is for the more sophisticated investor.

"It is essentially a managed fund with a guarantee," he says. "It is an excellent product for people who know what they are doing, but it shouldn't be the first tracker you invest in."

There is no cap on returns, but the tracker has a variable participation rate, which starts off at a low level of 45 per cent. This means that if the selected sectors rise in value by 10 per cent, investors will receive just 4.5 per cent of the growth.

As the market recovers, the participation rate will increase in line with the growth up to a maximum of 150 per cent, at the discretion of Goodbody. However, if little growth is recorded, the participation rate could sink below the 45 per cent initial rate.

"The participation is linked in to how successfully the funds are being managed and that is unusual," says Mr Mitchell. The commission on the product is not overpriced at 2.5 per cent, he says.

The fund also has an effective annual management charge of 1.6 per cent. This is higher than on some bonds, he notes, but is not over the odds considering the fund is actively managed.