Hargreaves Lansdown has ceased promotion of with-profits bonds in the belief that investors buying t...
Hargreaves Lansdown has ceased promotion of with-profits bonds in the belief that investors buying them now will see disappointing returns for two years as insurers repair free asset ratios in with-profits funds.
The intermediary believes that under all foreseeable market conditions, unit-linked policies will outperform with-profits.
Mark Dampier, head of research at the group, said if markets rise, with-profits bonds will not be in a position to increase their bonuses until huge repairs to free asset reserves have been made. In such a case, Dampier suggests investors would be better off in a unit-linked investment.
If stock markets drift sideways, life companies could become nervous about the hole in their reserves used to maintain capital value for investors against falling assets, he said. And if they switch to gilts to stem this increasing liability, they will then miss out on rises in equity markets. In this scenario Dampier believes investors would be better off in a stock-picker's fund.
The third scenario he envisages is that stock markets decline, in which case free asset ratios would fall, leading to market value adjustments (MVA) and bonus freezes. In this instance, investors should be holding gilts or cash, he said.
Hargreaves is not recommending that investors who already own with-profits bonds switch to other products, particularly as MVAs from many insurers will be high.
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