This page is quite old hence its rather spartan appearance.
Why not check out our Latest Stories page for our newest articles or search our site for anything.
MARKET COMMENT
By
Last week, Octopus Asset Management launched its 100/100 Fund. Over a six-year period from 15 January 2004, it will provide investors with 100% of the growth of the FTSE 100, plus complete capital protection. (Note that the capital protection isn't an absolute guarantee, but it is provided by Barclays Capital, which is a financially strong outfit.) 100/100 is aimed at investors who have lost out in the recent bear market, plus those who are dissatisfied with low savings rates. If I invest £5,000 in the 100/100 Fund and the Footsie doubles, I get back £10,000 (after averaging). If the Footsie has fallen over six years, I get back my original investment; £5,000, in this case. It's as simple as that - or is it? One pundit describes this product as "like investing in the stock market without the risk." I disagree: my quote would be, "It's like investing in the stock market without all of the return." Here's the crunch: "...the FTSE 100 index is a capital-only index, which takes no account of dividend returns... if you had invested in [these] shares directly, you would have been entitled to participate in their dividend income as well." Aha! The catch is that 100/100 doesn't earn any income. In fact, this is a common trick played by almost all stock-market bonds, which relies on the fact that most investors don't appreciate how stock-market returns are made up. Currently, the dividend yield on the FTSE 100 is around 3.2%. Over six years, assuming the yield stays at its current level and I reinvest my dividends, this income is worth over 20% of my initial capital. So, in return for 'no-lose protection', I give up a return worth over a fifth of my original investment. That's one expensive warranty! Put another way, the FTSE 100 could be around 20% lower than its current level six years from now before 100/100's no-lose guarantee saves us money, compared with an index tracker. The chances of this are pretty low. If you're that skittish about investing, you're probably better off in a high-interest savings account anyway. The 100/100 Fund also has higher charges and none of the flexibility that an index tracker enjoys, in return for its one selling point - the no-lose promise. So, to quote the company's brochure, "Too good to be true?" I'm afraid so! Find out more about Index Trackers and the Hidden Costs Of Guarantees.