Insuring Good Returns

An alternative to traditional fixed interest funds which are currently making their presence felt in New Zealand are the property-based funds which carry some sort of guarantee from organisations such as Lloyds of London.

These capital secured products aren't particularly widespread in New Zealand with just four firms in the market place. The four are Capital and Merchant, Equitable, Bridgecorp and Money Managers which distributes the Australian-based MacLaughlins Financial Service funds.

These types of investments tend to fit into the market place between Government Stock and other fixed interest investments such as managed funds.

However, Capital and Merchant chief executive Owen Tallentire says although they are all based on property investments they should be confused or compared with investments such as property bonds and capital notes.

His view is that these two types of investment are more like equity securities than debt.

Tallentire says it's pretty difficult to get a Lloyds insurance policy and requires paying a significant bond (in Sterling).

Tallentire says Capital and Merchant's guarantee is against the investors' money (as opposed to the company's capital adequacy). While the guarantee provides capital safety it does come at a cost.

He says the cost is about 1.25% of the money invested in the fund.

"The cost is quite high," he says, "but it does describe the seriousness of the policy."

Despite having the extra cost the fund offers returns which are significantly higher than what investors can get from using Government Stock.

Tallentire says Capital and Merchant's product appeals to investors who want income, but don't want to risk their capital.

He says their target market is people in the 55 plus category.

Experience has shown that many of the people who are using these capital-protected, insured fixed interest products are investors who formerly had reasonable exposure to international shares and were reinvesting their money offshore.

Following the poor returns from shares these people are looking for secure returns.

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