Timing is everything for a new product

Timing is everything when you're launching a new financial product, a maxim only too obvious to Mr David Cullen, executive chairman of BCP Asset Management.

Mr Cullen is, he is proud to say, the father of Irish tracker bonds. He was the man behind the first such product to be launched in the Republic back in 1990 and, 12 years later, is on the point of launching the latest in a family of five.

The current bond is the Double Growth Bond 5, a product designed to return double the growth achieved by the "Blue-Chip Equity Basket" - a selection split equally between the Standard & Poor's 500, the Eurostoxx 50 and the Nikkei 300 - over three- and-a-half years. This is a capital-guaranteed investment, with investors' initial outlay being placed on deposit with Permanent TSB for the entire period.

"The guarantee is that people put their money on deposit with Permanent TSB and, instead of getting the interest, they get the potential uplift in the market. Their interest goes to buy this," Mr Cullen explains.

In return for this 100 per cent capital guarantee, investors must content themselves with a 35 per cent upper limit on growth over the term.

This means that if the bond's chosen basket of indices happens to grow by more than 17.5 per cent over the coming three-and-a- half years, investors will not be able to take full advantage of that. On the other hand, with some indices down by 15 per cent or so this year alone, settling for a 35 per cent cap on growth might not be the worst way to pay for investment peace of mind.

Mr Cullen acknowledges that the last couple of years have provided a bumpy ride for investors, especially those with relatively modest nest eggs to nurture.

Tracker bonds such as his own, he argues, offer more nervous individuals a relatively safe route to becoming involved with the stock markets.

"It's easy to have the nerve when you have a 100 per cent capital guarantee," he says. This security is, according to Cullen, the equivalent only of deposits or Government gilts.

And as for the timing, Mr Cullen is banking on the current shivers running through stock markets all around the world marking the bottom, or the turning point, in the long-standing bear market.

"We feel that the market has gone so low that it is oversold. At a time when there's nothing but bad news in the stock market, it marks the end of a bear market. It's hard to see it getting much worse," he says.

"Very few commentators would doubt that the market's going to grow by 17.5 per cent over the next five years. We need a very small bounce for equities to get that return."

Just in case, for some reason, the bounce is bigger and investors feel that capping their growth at 35 per cent is too limiting, the bond offers an option to "flip" over into a new bond for an extra fee.

Mr Cullen says that two "tiers" of clients tend to be attracted by BCP's tracker products: those with a couple of million burning a hole in their pocket and those who can spare as little as €12,500.

"It generally tends to be people in their 40s, 50s or 60s," he says. "People who manage their own pension funds."

The BCP Double Growth Bond 5 closes to new entrants at the end of this month, and Mr Cullen plans to buy into his chosen indices before the middle of August.