Turbulent market to prompt new strategies

Stockmarket turbulence is likely to lead to a complete overhaul of guaranteed market products such as tracker bonds, according to Mr Pat Cunneen vice-chairman of AIB Asset Managers. The bull or rising market has lasted for so long that risk averse or guaranteed products have automatically offered returns and have not needed to be particularly attractive to lure substantial numbers of investors.

But in the current more volatile enviroment and indeed if markets fall back more substantially increasing sophistication will be needed.

According to Mr Cuneen this sophistication will develop as events provide the catalyst for a redesign of the product range.

Mr Cunneen points out that the Belgian market, in particular, offers highly developed guaranteed products and that Irish providers are likely to follow suit with new packages for regular savers as well as more sophisticated "hedging" strategies.

While guaranteed products have been the most popular area for retail investment sales over the past few years, they have been increasingly criticised for their high charges as well as lost opportunity costs and lengthy terms.

There are two basic types of guaranteed product. The first is a basic insurance-type guarantee with a fixed return of say 40 per cent over five years.

The other is a tracker bond guaranteeing a return of most or all of the capital investment as well as potential gains from rises in stock markets over the period of issue.

Mr Cunneen says guaranteed products are ideal for people who do not want to worry about the safety of their underlying capital.

However, no Irish institution has yet introduced a guaranteed product for those with regular savings. In addition the rigid fixed investment period does not suit everyone and many investors may be better off investing their money in a Special Savings account or indeed in the Post Office.

Nevertheless, over recent years the big investment institutions have made significant profits selling tracker bonds. And there are many investors who will have been feeling happy this week that they did not own shares directly and could avail of the protection offered to them by guaranteed products.