September 2007

OPEN FORUM: A good deal?

Have guaranteed products been a good deal for investors over the last couple of years during the bull run? And now that markets are down, will guaranteed products shine?

Open ForumHannah Parkinson, associate marketing director, Close Investments
“Investors will always want the best of both worlds – returns without risk. Nice idea, not possible, but it is possible to make the most of the market’s good times and offer shelter when it’s bad. Yet there are surprisingly few products available to meet this demand. Regular deposit savings accounts offer capital protection, but returns are generally low. If guaranteed products have a bad rep, look to the costs and restrictions. Exposure to markets should be maximised, daily dealing should be standard and charges should be reasonable; this would be an adequate reflection of how these funds work and perhaps reduce the criticism directed at them.”

John Townley, head of capital protected lifecycle fund sales, ABN Amro AM
“Recent market volatility has reminded investors of the benefits of incorporating guaranteed investment solutions in financial planning. Especially for those saving for retirement, capital guarantees prevent the tendency for investors to be lured into adverse investment decisions based on near-term market movements that can negatively impact long-term goals. Investment solutions that combine attractive returns, security, flexibility and cost transparency – such as capital protected lifecycle funds – provide investors with an extremely compelling means of accomplishing their investment objectives with convenience and peace of mind.”     

Denis Panel, head of portfolio management, Sigma
“BNP PAM has a consistent record managing guaranteed products, both actively managed and formula funds, within the Sigma team. During different market scenarios these products can provide interesting returns. Over the last two years, low volatility on equity markets and rising interest rates created favourable conditions for these products. During a bull market, equity-linked guaranteed funds outperform pure money market investments. While during uncertain markets, like now, they generate interest by meeting investors’ need for security. Our team is benefiting from this environment by diversifying the underlying assets of the funds we currently offer.”

Phillip Silitschanu, senior analyst, Aite
“While guaranteed products have remained extremely popular in recent years – mainly because they are usually pitched to retail investors by bank distributors – the truth is that they may not always be the best suited product to those investors. By guaranteeing their capital and returns, many investors have lost out on the opportunities the rising markets provided. However, the new breed of guaranteed products, which take advantage of much more sophisticated investment methods (ie, some utilise hedging strategies) are perfectly poised to take advantage of the coming scramble of investors looking to protect themselves from the volatile markets we are now facing.”

Roger Edwards, head of marketing development, Scottish Life
“With the benefit of hindsight, guaranteed products will always appear less relevant when market growth is good and will enjoy a renaissance during periods of volatility.
“There are many types of guaranteed products, some more flexible than others, but most are a good deal under any market conditions for people who want a little more than just the assurance that markets will always grow long term.
“They want extra peace of mind within the timeframe they are considering and good advice can ensure they get the flexibility they need.”

© fe September 2007