By Kira Nickerson HSBC Asset Management has launched a protected technology Isa linked to a basket o...
By Kira Nickerson
HSBC Asset Management has launched a protected technology Isa linked to a basket of 20 equally weighted underlying stocks.
Safety.net is a Dublin-based product and the offer period lasts until 1 June. It offers 90% capital protection but only if the product is held throughout its three year term.
Among the stocks in the portfolio are the likes of Microsoft, Motorola, AT&T, Cisco, Nokia, Sony, Yahoo, Toshiba, AOL and Vodafone. There is a 5.25% initial charge and an annual fee of 0.5%, 3% initial commission is also available.
In order to provide the capital preservation the group purchases a zero coupon bond to provide the downside protection with the rest of the money raised going into derivatives to gain market exposure to the basket of stocks. The upside on the product is not capped.
The value of the portfolio is assessed at the start of the bond's life and at quarterly intervals.
This equates into 13 quarterly results over the three years, which will be then used to calculate the average portfolio value over the period.
The final return to investors is calculated by comparing this average portfolio value with the starting value of the portfolio.
The group is using average options to gain exposure to the stocks, these tend to reduce returns in a rising market but reduce losses in a falling one. These are cheaper than the spot options usually used in the group's Dublin products
Alison Savage, director of marketing and business development for HSBC Asset Management said volatility in the technology sector meant it was cheaper to buy average options.
Because of sector volatile an option linked to one of the technology indices such as Nasdaq would also be too expensive, she said. Instead the group decided to invest in a customised basket of shares in order to limit risk and bring the cost of the option down.
Although the product could be Pepable because it is a Dublin based equity, HSBC has decided not to open it for Pep transfers because of its global content.
The minimum investment in either the shares or via an Isa is £5,000. Investment loss is restricted on a one to one basis up to a maximum fall of 10% of the initial investment. For example if the portfolio falls by 40% and the original investment was £5,000, then the investor would receive £4,500. If it fell by 5%, the investor would receive £4,750. If the portfolio return was up 40% then the same investor would receive a return of £7,000.
While the product is Isable, the group is also targeting it at Sipp and SSAS investors as it offers unlimited investment in shares.
Savage said: The remit of their portfolios means they probably would not invest in technology because of its volatility. Through this they can achieve some exposure but limit their risk."
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