The launch of the Select Safe Combination Bond this week will see Scottish Life International coming to market every three months to buy options on the FTSE and Standard & Poor's 500 indices. The product offers investors exposure to these indices via two open-ended capital-protected funds, structured through the purchase of equity index options and zero-coupon bonds to give either 95% or 100% capital protection. Returns are calculated on a quarterly basis and because the funds are open-ended the bond has no fixed maturity.
"We will approach counterparties for option prices every three months to ensure we get the best participation rates for our customers," said Richard Jamieson, investment marketing manager in Edinburgh. Low implied volatility and relatively low interest rates mean that Scottish Life is able to purchase cheap equity options this quarter, giving investors exposure to 254% of the FTSE's upside.
Scottish Life has a list of approved counterparties which it selected based on criteria such as credit rating. Jamieson declined to name counterparties on the list.