Distributors in the traditionally staid U.K. retail market are offering investors products with hybrid payoffs combining income and capital growth. A recent spate of income and growth equity investment instruments has hit the market, predominantly from U.K. thrifts. The thrifts say they are facing competition for sales of equity index trackers from high street stores, such as the supermarket Tesco and retailer Marks & Spencer and so have had to come up with more sophisticated products.
The typical structure splits the investment in half between a deposit account or guaranteed equity bond and an equity index tracker. Skipton Building Society, however, issued an innovative structure in July, which split the investment three ways to give investors participation in the growth of the FTSE 100 and the Halifax House Price Index, as well as an income component from a guaranteed equity bond.
Newcastle Building Society, which sold a similar product combining participation in the growth of the Halifax House Price Index plus income from a guaranteed equity bond, is looking to launch its latest income and growth product this month. Steve Irwin, marketer at the thrift, said the structure will be an equal split between a capital-protected five-year FTSE tracker and a guaranteed equity bond. "We're aiming to do something a little bit different," said Irwin, who added that the innovation is balanced by the guaranteed equity bond element, which appeals to the average investor. Irwin declined to name the counterparty on the deal.
