Secure Income Bond 7.5%

ctdctd

Hi,

Well, I know we don't like GEB's so how about one of these from Keydata.

http://www.keydata.co.uk/sip6/pdfs/SIP6_Brochure.pdf

Seems to offer 7.5% PA over 5 years and can go in an ISA.

Promises for capital return are a bit woolly - "Aims to provide return of capital after 5 or 7 years"

What do you think of it as a product - Corporate bond level risk with better returns or something worse?

cheerfulcat

I don't know why but I really don't like Keydata - there always seems to be something slightly dodgy-feeling about their offerings. And I would personally have a problem with that specific product; it looks as though it is based on some sort of viatical settlement, where you are essentially profiting from someone's death.

ctdctd

cheerfulcat wrote:

And I would personally have a problem with that specific product; it looks as though it is based on some sort of viatical settlement, where you are essentially profiting from someone's death.

The only reference I can find to how your money is invested is:-
"The SIP has strict criteria governing the type of insurance contract
that can be held within it. There are clearly defined responsibilities
for verification and lapse risk. One of the types of contract bought
will be commercial key man insurance contracts held by businesses
that would otherwise lapse the contract on the retirement of the
individual insured."

Where did you pick up the viatical bit - a new word for me!

cheerfulcat

I remember when viatical settlements were introduced commercially in the US - the word just stuck with me! ( More from Wikipedia, if you're interested ) There was a fair bit of unease about the ethics of such an investment at the time.

Key man insurance, as mentioned in the key facts sheet, is insurance taken out by companies on the health/lives of their most important employees; it's slightly different from the original viatical in that these employees are presumably not terminally ill but the fact that Keydata say

One of the types of contract bought will be commercial key man insurance contracts held by businesses that would otherwise lapse the contract on the retirement of the individual insured.

suggests that the life expectancy of those individuals might be on the shorter side. The mention of actuarial tables elsewhere in the literature also suggests that the investment returns depend on those people dying. This is of course just speculation; you could always 'phone them and ask.

Careful_ly

Has anyone else got an thoughts on this product, it has been mentioned to us by an IFA for a possible home for some pension funds

dunstonh

It's better than most the examples but I still wouldnt bother.

I would aim for 5% income and try and get a little growth on top so your money retains some real value. If you were to do one of these every 5 years your money would drop over time in real terms due to inflation.

ctdctd

dunstonh wrote:

It's better than most the examples but I still wouldnt bother.

I would aim for 5% income and try and get a little growth on top so your money retains some real value. If you were to do one of these every 5 years your money would drop over time in real terms due to inflation.

I kind of like the idea of a defined figure of 7.5% tax free in an ISA which should beat inflation by 3.5% or so if the Bank of England get its targets right (ish). However the lack of a capital guarantee is a little worrying - any thoughts as to how secure this product is? How robust are KeyData for example?

dunstonh

I'm used to working in double digits, even for income so I dont really get excited about single digit returns.

The 7.5% is above inflation but at the end of the 5 years, your capital is returned (assuming capital security rules met). If you have spent that 7.5%, then you are losing out to inflation then. If you putting 3-4% to one side, then you are covering that.

keydata are a big player on the GEB front.

EdInvestor

The "insurance contracts" are American, so there is also exchange rate risk.This can be severe, as anyone who has invested in the US markets over the last five years will be well aware.:(

The product is not dissimilar from traded endowment policies (TEPs) - which now have to be flogged to the Germans as no-one wants them here.

I seem to remember there was a fuss about these viatical policies in the US a while ago?Perhaps that's why they are now trying to market them to UK investors, who might not be aware of the problems.

Prince_of_Darkness

Worth noting the Keydata product is precluded from investing in viaticals, premium funded and partial policies. Once the strike date has passed all the counterparties to the product have credit ratings of A or higher according to Standarad and Poor. Incidentally there are tax incentives for some German investors to buy TEP so they are willing to pay higher prices than normal UK resident investors.

John_mark_2

Hi All,

I am a financial planner and I personally studied the Secure Income Bond on behalf of my clients. The SIB is a fund that buys a bond on the lux stock exchange. The bond's underlying assets are senior life settlements. These are life insurance policies that will mature on the death of the life insured. SIB will buy these 2nd hand life insurances as their owners do not afford to keep paying the premium and hence they surrender their policies. The life insured must be over 65 yrs of age and he/she must be insured on a certain amount. SIB invests only in insurance companies that are rated by S&P above A. Hence SIB will make money the faster the life insured dies since the company will be paying his premium and hence SIB will be the beneficiary of the life insured.

SIB is a fantastic product in my opinion because it invests out of the market with no stock market exposure and hence should offer stability. It also offers a steady income which is quite good.

Let me know of your feedback! Thanks guys