This probably hasn't been the best week to launch a new tracker bond - stock market values are sliding everywhere and many commentators are suggesting that the three-year bull market may be finally coming to an end. Nevertheless, MMI Asset Management has produced what at least one independent adviser, Mr Douglas Farrell of National Deposit Brokers, is describing as "not a bad product" in what is otherwise a mundane recent selection of tracker bonds.
The NDB Tracker Bond Information Service lists the main features of all bonds currently on the market and most, says Mr Farrell, are showing how this market has become overpriced, mainly because of low deposit interest rates - rates that are needed to underpin the capital guarantees associated with trackers. Long "averaging" clauses and ceilings on participation and overall performance returns are also signs that trackers are no longer the safe investment they once were. What makes these two bonds - the European Capital Bond and the European Growth Bond - appear to be better value, says Mr Farrell is that they include the FTSE-100 as part of the five markets included in the group of Euro-indices being tracked. They are: the Swiss SMI (40 per cent); the Dutch AEX (20 per cent), the Belgium Bel (20 per cent), the FTSE 100 (10 per cent) and the French CAC (10 per cent.) Between March 1993 and March 1998 the average annual return of each of the five markets has been 25 per cent, 28 per cent, 21 per cent, 12 per cent and 14 per cent respectively.
The markets have done less well since March when they started slipping as a result of the bad economic news coming out of Japan and the Far East. Europe is nevertheless embarking on a radical development course as a result of EMU and mass privatisation of state industry and MMI, like others, is predicting - but not promising - that the European economy is better placed, with its huge population and annual spending power of more than $3,500 trillion dollars (£2,507 trillion), than others to ride out any economic storms from the East.
If you think now is the time to start buying into a tracker and this is the one you want (remember, the fund managers are not buying the actual stocks, just the options on the performance of the stock indices), you will need at least £3,000, which must be invested for five years and four months. The Growth Bond option offers a better potential return in that you get 100 per cent of any growth in the markets and a capital guarantee of 90 per cent. Option two, the European Capital Bond offers 100 per cent capital guarantee but only 70 per cent of any growth in the markets. This bond carries a 16-month averaging period from which final indices performance will be calculated. The assault on deposit rates, and the jittery stock market makes it all the more important that savers and investors get independent financial advice - and establish how tolerant they are of risk - before they make any final product choice.
For more information about MMI trackers, contact (01) 6766277.
