Natwest Guaranteed Combi Bond

Baz_2

dunstonh wrote: »

Its a good idea to start with the basic assumption that they are rubbish but keep an open mind as every now and then a good one turns up. Not often but it does happen from time to time. The banks themselves tend to offer lower quality versions and you rarely find a bank offering one with decent terms.

GEBs are structured to be sold by low skilled sales reps to low knowledge consumers. They play on words like guarantee and no charges but in reality the guarantees are usually dependent on certain things and the charges are imlicit[hidden] e.g. linked to FTSE but you dont get dividends - Dividends can be 3-4% a year. So, is that the charge?

I dont know if the 8% one is the best one at the moment as I only got told about it a few days ago and havent done a full research on it but I know enough to know the terms are better than the bank version.

Am I right in thinking this pays 8% pa if the footsie is not 50% of what it is when you open the bond? Or is it that you get your stake back if it doesn't go below 50% and only get the 8% pa if the footsie has risen over the 5 years?

Would the 8% be taxable and is there a minimum investment amount?

Any details about this on the net?

Baldur

Baz wrote: »

Any details about this on the net?

Full details (with flow chart, which should answer your above questions) - http://www.premierassetmanagement.co.uk/PLE42/Brochure.pdf

As I said above - I presume that this is the product to which dunstonh is referring.

dunstonh

The 8% one sounds decent to me but their budget doesnt include advertising it I guess

Its a product that is retailed via IFAs. They dont need to advertise it that way.

Even I cant believe the ftse would half from here and still be there in five or six years.

Though it has currently fallen below five years ago, its still at 80% of that level and this is quite exceptional already

Thats the risk and potential that each individual needs to decide for themselves. Is a FTSE100 price around 1900 likely in 5 years time?

Am I right in thinking this pays 8% pa if the footsie is not 50% of what it is when you open the bond? Or is it that you get your stake back if it doesn't go below 50% and only get the 8% pa if the footsie has risen over the 5 years?

If at the investment point the FTSE is 3800 then as long as at maturity the FTSE100 is higher than 1900 then your capital is returned.

Would the 8% be taxable and is there a minimum investment amount?

It is taxable but can be held in an ISA. £5k is min

Raysor

KeepSmiling42 wrote: »

We have been offered a guaranteed combi bond by natwest but we're not sure whether it is a good investment.

The deal is that Natwest take a snapshot of the FTSE 100 now and again in 2015. If the value has risen by 50% then we will receive our deposit (which is guaranteed) plus 50% return in 2015. If it doesn't hit the 50% growth mark we will receive the return that the FTSE has grown by. If the FTSE grows more than 50% our return is capped at 50% and natwest receives the additional

Is this a good deal, given that we are willing to put a lump sum away for 5 or more years? Also if it is a good deal - Halifax has a similar offering. How do you choose?

thanks

It could be OK, but could you do better?
Let's assume that the FTSE will rise by 50% or more over the next 5-6 years. I say this because it is fairkly low at the moment and as inflation starts to come back then assets will be the place to be. If you agree with this assumption then why not put the money into a FTSE100 ETF?? What's the prospective yield on the FTSE100?
Or compare the returns from cash: Ok so rates are virtually zero now but will rise over the next 5-6 years. Try compounding that.
What return are you expecting?
If you want your money to preserve its value either buy gold (ETF) or Index-linked gilts (particularly if you expect hyperinflation).
The problem with institutional investments is that thay are loaded with charges, so best to make your own.
Myabe I would go with FTSE100 ETF, Gold ETF and Oil ETF (say half investment now and half in 6 months time. (ISA as much as you can (unless you are non-taxpayer)

dunstonh

Let's assume that the FTSE will rise by 50% or more over the next 5-6 years. I say this because it is fairkly low at the moment and as inflation starts to come back then assets will be the place to be. If you agree with this assumption then why not put the money into a FTSE100 ETF??

A medium/high risk investor would probably do that. However, the GEB is aimed at a more cautious investor.

Myabe I would go with FTSE100 ETF, Gold ETF and Oil ETF (say half investment now and half in 6 months time. (ISA as much as you can (unless you are non-taxpayer)

On a risk scale of 1-10 (Cash being 1) the Oil and Gold comes in at 9/10 and the FTSE 100 is a truly awful index that has spent most of the last 15 years at the bottom of performance tables and its limited diversification and heavy weighting to just a small number of companies doesnt make it attractive unless you really feel that large caps are going to outperform in the near future. The FTSE100 investment would be 7/10. Basically, all well above the risk profile of the typical consumer thinking about the GEB offers. (although higher risk investors will often use good quality GEBs as a hedge for the risks or in place of their sector allocation for UK or similar).

Raysor

dunstonh wrote: »

A medium/high risk investor would probably do that. However, the GEB is aimed at a more cautious investor.



On a risk scale of 1-10 (Cash being 1) the Oil and Gold comes in at 9/10 and the FTSE 100 is a truly awful index that has spent most of the last 15 years at the bottom of performance tables and its limited diversification and heavy weighting to just a small number of companies doesnt make it attractive unless you really feel that large caps are going to outperform in the near future. The FTSE100 investment would be 7/10. Basically, all well above the risk profile of the typical consumer thinking about the GEB offers. (although higher risk investors will often use good quality GEBs as a hedge for the risks or in place of their sector allocation for UK or similar).

How do you get cash as risk level1?
The FTSE100 would be classified as low risk. The consensus (?) is that the FTSE100 willl be about 4400 by end 09.
Where are you going to put cash for any sort of return?
What do you think about inflation?
I agree that the FTSE100 is not a good indicator of the "market" and this is why there needs to be some managment of a portfolio to get better returns. For simplicity sake I am suggesting the FTSE100 ETF.
Is the GEB we are talking about not dependent on the performance of the FTSE100 for a reasonable return?

sabretoothtigger

Looks good, risks would have to be fairly extreme to take effect like (average) inflation above 8% and also that we're in a bear rally that takes the ftse to 5000 by 8th of May but then leads the ftse to 2500 where it stays for the next five years, fairly unlikely so inflation is probably the worse risk but no more then a normal fixed rate of return.


If rushing to take this bond by april you could then take a counter bet on the short term risk by going long on the ftse till 8th of May

Raysor

Am I right in saying that with these combi bonds, half your money is put on deposit at 8% ish and the other half buys the FTSE100 and is dependent on its performance?
If that is correct then the base return is only 4%?
Correct me if I am wrong because I haven't looked at it thoroughly.

sabretoothtigger

You get 8% back annually fixed rate. You should look at it yourself.


Not directly related but worth looking is the return ratios in some of the worst market decades was heavily biased towards dividends. None of which you will see with this bond (directly)

dunstonh

How do you get cash as risk level1?

The same way everyone else does.

The FTSE100 would be classified as low risk.

Not a chance it can be classed as low risk under any definition of the word.

The consensus (?) is that the FTSE100 willl be about 4400 by end 09.

Doesnt matter what the upward potential may be. When it comes to risk its the downward potential that matters.

Where are you going to put cash for any sort of return?

Putting up with generally low rates, NS&I etc on the basis that you have to hedge against the risk on other options.

What do you think about inflation?

Enough to keep me recommending NS&I index linked certs as a good place to keep cash.

Is the GEB we are talking about not dependent on the performance of the FTSE100 for a reasonable return?

The link to the FTSE100 in the GEB is purely for underwriting purposes because of the way the guarantees and returns are funded. The consumer themselves will not be investing in the FTSE100. The upward performance is not an issue and there is a fair level of downward allowed before capital risk becomes an issue. Plus 5 years is a good timescale. I dont think you will find many people giving a level of 1900 on the FTSE in 5 years time as likely.

Remember with these things, they are not there to attract investors the shrug off short term losses and look for the next potential. They are there to attract the more cautious individual who doesnt mind a calculated risk where they feel the odds are more stacked in their favour. The downside is always the focus when it comes to risk. The upside doesnt really matter at that point.