It is inevitable that once an investment product has been around for a while, it begins to innovate - or in some cases, mutate. The tracker bond is no different and seven years after its first appearance, it has adapted to new circumstances and market requirements.
Three companies have brought out new trackers: Bank of Ireland Investment Managers, Scottish Provident and Irish Life. However, it is the Irish Life product that is the most interesting since it is a Pension Tracker, the first of its kind.
The attraction of this new bond, which has two investment periods of three years and 11 months or five years and 11 months, is that it will fill several gaps in the pension product market. For someone approaching retirement in four or six years time this is an opportunity to enjoy exposure to a basket of international stock market indices, but without any risk to capital. (Most investors this close to retirement will have shifted their pension fund proceeds into low-risk cash funds - but at the price of possibly losing strong market growth.)
For cash-rich small companies the pension tracker, with its full tax-relief is a way to lessen their tax bill as they approach their year end; ditto for self-employed investors who must finalise their tax returns for the end of January income tax deadline.
Unlike the person on the verge of retirement, these latter two buyers will have to use the proceeds of their bonds after the designated period to purchase another pension product, which may carry higher charges than the pension trackers. But it is likely that Irish Life will have another pension tracker available as a transfer option when this one matures.
This unique tracker requires a £3,000 minimum purchase; the first option of three years and 11 months caps any potential growth at 50 per cent, while the longer-term option guarantees to pay 100 per cent of any growth achieved, making it probably the more attractive choice. (Since you can take a pension between aged 60 and 70 if you are self-employed, or your employer does not provide you with an occupational scheme, this tracker can be purchased up to age 64.)
The pension tracker funds are invested in a world basket of indices which include 40 per cent exposure to Japan; the balance is in the Swiss SMI (20 per cent) and 10 per cent each to track the CAC, DAX, FTSE100 and S&P 500 indices. The Nikkei 300 index also features largely in Standard Life's new Diamond Tracker, the first in a new series the company plans to bring out over the next few months.
Half the funds are used to buy options in the Nikkei 300 and the other half in the Eurotop 100, a basket of the top European companies. With Japan continuing to experience serious economic problems, such a high exposure over five years may not be too serious given "that a lot can change over the period", says Mr Dara Fitzgerald, fund manager for Hibernian.
"Three and a half to four years can be a long time, but it has to be said that had you asked me three years ago I would have said the same thing about Japan, and in fact the situation has become worse since then.
"Our belief is that you should have some exposure to this very important world market, but that 40-50 per cent exposure may be too high" given the fundamental issues that still need to be properly addressed by the Japanese government and especially the banks there.
The Standard Life bond requires a minimum investment of £5,000; the capital is fully guaranteed and there is no upper limit on the growth return - a real plus. The averaging period in this case is 12 months, but taken from the first and last six month periods of the bond.
Finally, Bank of Ireland's latest tracker, the 10th in their World Tracker Bond series is also a five and three-quarter-year investment with a gross return equal to 90 per cent of any growth achieved. You need a minimum of £3,000 to buy into this bond and the investment spread is dominated by the Nikkei 300, the FTSE-100 and the S&P 500 indices with 25 per cent exposure to each. The balance is spread between the Swiss, Dutch and French markets.
You can choose to either take out the bond as a deposit, in which you will pay 26 per cent DIRT on any proceeds or as a life assurance policy in which taxes are paid internally and there is no further tax liability at maturity.
The Irish Life pension tracker closes December 17th; the Standard Life one on December 19th and the BIAM bond on January 14th. Investors are advised to review the full tracker market before opting for any single product. An updated table of all available bonds is available weekly from Tracker Bond Information Services, a subsidiary of National Deposit Brokers. The freephone number to contact is 1800 322422.
