Skandia has created a new share class for its innovative, risk targeted protected fund, Skandia Shield, to enable customers to invest in the product via an ISA.
Under HMRC rules, for a fund to qualify for investment within a stocks and shares ISA, it cannot offer protection of 95% or more of the original investment, unless it is held for a period of at least five years. The Shield Fund offers 80% protection on the highest ever share price the Fund achieves. So if the share price falls, there may be a situation where the customer is buying something which offers protection of 95% or more of the original investment.
Skandia has found a solution by working with the Shield fund manager, Commerzbank, to create a new share class specifically for ISA customers. The share class will be closely managed to ensure it does not breach HMRC regulations. If ever the 95% protection level is breached the fund will temporarily close to new investments until the level of protection reverses below this level. This enables the Fund to comply with HMRC regulations without the need to restrict the level of protection or introduce lock-in periods.
Skandia Shield is the first platform based risk-targeted protected Fund. It was launched in November 2010 at 100p with a protected price of 80p. During July 2011 the share price peaked at 106p, giving a protected price of 85p. Following recent market volatility the share price has fallen but the protected price remains 85p. Furthermore, the Skandia Shield fund has been a great defence against shock market falls – between 7th July and 10th August the FTSE 100 fell by almost 17%, while Shield only fell 7%.
Being risk-targeted, the Skandia Shield fund operates within strict volatility levels, designed to match a client’s attitude to risk – equivalent to a risk rating of four out of ten on Skandia’s risk scale (ten being highest risk). Skandia has an established expertise and track record with risk targeting as exhibited in the popular Spectrum Fund range.
The Fund is designed within a UCITS framework, and offers daily liquidity, so clients can buy and sell whenever they like, with no lock-in period. Most importantly, the fund cannot “cash lock” – other protected funds can find themselves so heavily invested in cash that they cannot generate returns sufficient to allow increased equity exposure when markets recover – they therefore stay invested in cash and eventually close. Skandia Shield allocates investments to cash or assets depending on volatility, not returns.
Graham Bentley (pictured), head of proposition at Skandia, says: “The Skandia Shield Fund has been extremely popular, and is now attracting nearly GBP8m in sales a month, which is fantastic for such a new fund. We are delighted to be able to extend the Fund to our ISA clients, where it is likely to have mass appeal with clients looking for performance linked to stock market and bond investments but want some protection against heavy losses.
“The 80% downside protection will offer some peace of mind to investors, especially in such volatile markets, and the fact that clients can go in and out of the Fund when they like makes it more appealing than structured products which lock the money in for a fixed term. The avoidance of potential cash-lock should satisfy anyone who has an aversion to CPPI-type products.
“Investment returns within the Fund are linked to total returns of the underlying portfolio, including dividends, something which is uncommon amongst structured products. Overall, the Fund provides a more modern and flexible approach to structured products, whilst staying competitive on costs.”
