New research(1) from investment management company Managing Partners Limited (MPL), reveals that a staggering 64% of investors in with-profits investments are unhappy with their current performance, and more than one in four (28%) are very unhappy. Despite this, 65% still plan to carry on investing in them, but 25% – some 2.4 million people – intend to stop.
A comparison with research(2) carried out a year ago shows that aversion to with profits among investors is increasing. The proportion of investors who are ‘fairly happy’ with their policies has fallen to 30% from 37% a year ago, while those who are ‘not very happy’ has risen to 36% from 33% a year ago. Those "Not at all" happy has risen to 28% from 24% a year ago.
Jeremy Leach, Managing Director of MPL, said: "Another year of volatile stock markets is making it difficult for with profits to deliver decent returns. Investors are leaving with-profits in their droves, especially those who are seeing their endowments fall short of repaying investors’ mortgages. But this doesn’t mean investors have lost their appetite for the steady, predictable returns that with profits once offered, it is just that with profits has failed to deliver. It is no surprise that only 3% of those people with these products are very happy with their performance.
"The volatility we continue to see on financial markets means 2008 is a prime time for investors to look to funds that invest in traded life policies, which have a proven track record in delivering returns superior to cash without the risks involved with equities. Investors and their advisers need to find alternatives to with profits, and from our experience a growing number are turning to funds that invest in traded life policies."
Investors looking for steady, predictable returns should consider investing in funds that invest in Traded Life Policies (TLPs). These are United States-issued life assurance policies sold before the maturity date to allow the original owner to enjoy some of the benefits during their lifetime. TLPs are purchased at a discount from their maturity value, which in the majority of cases is fixed at outset and means that they are guaranteed to rise in value. The TLP market has seen huge growth from $50m in 1990 to $20bn in 2006.
While TLPs carry the risk that it is unknown when the lives assured will die, the key attraction of a TLP fund is that with the right diversification and actuarial analysis, they can be used to deliver steady, predictable returns. Because of this high degree of certainty and their solid underlying value, it is possible for products that invest in them to secure a substantial degree of gearing to enhance returns and initial allocation rates. This is particularly attractive to UK investors in countering the surrender penalties imposed for pulling out of with profit funds.
A round table staged by MPL in April concluded that volatility in equity and property markets would not stop investors making positive returns from TLPs in 2008. Two IFAs who attended the debate, including Nigel Newlyn, Director of Argent Personal Finance Managers, and David Chinn, Partner in the Financial Services Division of Oury Clark, both said they were increasing their clients’ exposure to TLPs. Professor Merlin Stone, of the Bristol Business School, said that the predictability of TLP returns meant they could act as a replacement for with profits and help address the increasingly important issue of longevity risk.
For retail investors, MPL offers a GBP Growth share class in its Traded Policies Fund. The fund is a fully-regulated Cayman Islands mutual fund that can be included in personal portfolio bonds, wraps and SIPPs. Its first year performance to 1 April 2008 was 9.62% on a bid-bid basis.
For further information, please visit the website: www.managing-partners.com.
Full tables of research results:
|How happy are investors with their with-profits based products||Percentage of with-profits investors (Last year’s figures in brackets)||Number of investors (Last year’s figures in brackets)|
|Very||3% (3%)||290,797 (291,700)|
|Fairly||30% (37%)||2.91 million (3.598 million)|
|Not very||36% (33%)||3.49 million (3.201 million)|
|Not at all||28% (24%)||2.71 million (2.33 million)|
|Don’t know||3% (3%)||290,797 (291,700)|
|Do you plan to continue to invest in your with-profits based product||Percentage of with-profits investors (Last year’s figures in brackets)||Number of investors (Last year’s figures in brackets)|
|Yes||65% (67%)||6.30 million (6.51 million)|
|No||25% (21%)||2.42 million (2.04 million)|
|Don’t know||11% (11%)||1.07 million (1.07 million)|
(1) MPL commissioned the research company YouGov to interview 2,115 people between 21st and 22nd April 2008. The research was conducted online. The sample was based on a nationally representative sample of GB adults aged 18 and over. Results were weighted in order to be nationally representative.
(2)MPL commissioned the research company YouGov to interview 2,438 people between 26th and 30th April 2007. The research was conducted online. The sample was based on a nationally representative sample of GB adults aged 18 and over. Results were weighted in order to be nationally representative.