Guaranteed investment products a steady floor to stand on
Life companies promise that the value of funds with explicit guarantees will stay at 80% of their highest level, or more
As investors fear another sharp market correction, guaranteed investment products are coming back into fashion. But this relates not necessarily to fixed guarantees, such as the five-year plans that are linked to bonds and promise to grow capital from, say, R1m to R1.6m, or structured products, in which there is a minimum payout provided the client stays the full five-year term. The most notable increase has been in products that follow a technique called constant proportion portfolio insurance (CPPI). The oldest such product is the Old Mutual Dynamic Floor Fund, which is nearly 15 years old. Its approach is similar to that of the funds that followed it onto the market, such as the Discovery Escalator, Sanlam Escalating and Momentum Prosperity funds. The difference is that these product ranges offer explicit guarantees from the life company. Craig Sher, head of product development at Discovery Invest, says that as guarantees are not permitted on unit trusts, these escalator products...
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