Proof is in the pudding for Liontamer capital-protected funds

Liontamer Investments has hit out at critics of capital-protected funds, saying opponents have overstated the negatives regularly associated with them.

Friday, April 23rd 2010, 6:09AM

by Paul McBeth

Managing director Janine Starks told Wellington advisers at an Investment Store roadshow that it was time to bust some of the myths around capital protection. Added cost is usually the first objection put forward, and while Starks accepted this could be an issue, she said Liontamer cuts its own margin if oversubscriptions force it to take out more protection through a fixed interest bond, with management costs built into the product terms.

She cited the recent Australian fund as an example, saying when the fund put in another hedge, "we did so at no margin, because our fees are built in."

Starks also talked down the lack of liquidity in capital protected funds, saying that while Liontamer's older fund had quarterly exit points, its latest funds were monthly with no restrictions.

A major benefit of capital-protected funds is that they remove the risk for investors by ensuring they will keep their principal if markets plunge, Starks said.

Though this may require a bit more explanation from advisers, Starks says their terms are clearly defined, and that investors adapt as they grow more familiar.

Investors in two Liontamer funds enjoyed the capital protection at the end of last year, when the Easy Series 4 and Japan Series 1 funds matured after taking big hits from the global financial crisis.

Another fund, coming up to maturity next month, will likely call on its capital protection, and Liontamer is offering to buy investors out at the current price and to roll them over into a new offering that launches in June.

Paul is a staff writer for Good Returns based in Wellington.

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