With a minimum investment requirement of £2,000, and no currency exchange risk, the new Hibernian EURO-tracker bond may be of interest to small as well as larger investors who want exposure to European stock market indices.

The first of what will probably be a long line of "euro" bonds, this one invests an equal share of the fund (ie: 20 per cent) in tracking the performance of five different European stock markets the German DAX, the French CAC 40, the Belgian Bel 20, the Italian MIB 30 and the Spanish IBEX 35. It offers three investment options:

Option A: A term of three years and nine months in which 100 per cent capital is guaranteed but you will receive a gross return of only half of the overall rise in the indices. Growth potential of the indices is unlimited.

Option B: A term of five years and nine months in which capital is fully guaranteed but the gross return is 65 per cent of the overall rise of the indices. There is no cap on the maximum growth potential of the indices.

Option C: A term of five years and nine months with a capital guarantee of 85 per cent but a 110 per cent gross return on the overall rise of the indices and no cap on the maximum growth potential of the indices.

Recognising that the capping of returns and growth potential can appear complicated, Hibernian has provided some good illustrations of how this tracker works: for example, if you were to invest £10,000 in Option A and the markets rise by 50 per cent over the period, you would receive a gross return of 25 per cent of your investment, or a net return of £11,900 (this is assuming the standard tax rate of 24 per cent.)

Under Option B, if the markets went up by 50 per cent, the same £10,000 would be worth £12,470 (ie. 32.5 per cent gross or half of the 65 per cent return of the market performance).

Under Option C, where the capital guarantee is lower, but the gross return is higher at 110 per cent, the same £10,000 would earn £14,180 if the market rose by 50 per cent. (The £14,180 is calculated by multiplying £10,000 by 55 per cent, minus 24 per cent tax.) The attraction of this bond for many will be the elimination of currency risks, a factor that is particularly relevant, says Hibernian "due to current weakness of the Irish pound against non EMU countries".

The performances of the five indices that are tracked by this bond shows that in total they rose by 164 per cent, with Spain's performance particularly strong with three- and five-year rises of 220 per cent and 205.8 per cent respectively. If there has been a comparatively weak link in a strong bull run, it is the Italian MIB 30 index which has risen by 74 and 37 per cent over the three and five years, but Italian short-term performance has been good.

Meanwhile, AIB's latest tracker report shows that two five-year FTSE 100 tracker bonds which are set to mature in the next 10 days will probably be among the highest performers to date with close on 90 to 100 per cent returns over the period, or 18 to 20 per cent per annum. Their best performing tracker to date, a five-year FTSE 100 bond that matured last June achieved an 87.60 net return.

Most commentators doubt whether trackers being issued now are likely to achieve these kinds of returns again the expectation is that with historically low interest rates and the peaking of world markets, returns will be considerably more modest.