Article date: 8 September 2004
On 30 September, Woolwich Plan Managers (WPM) will launch aGlobal Distribution Bond, the first of a new generation of productsfor income seeking investors. Returns from the bond are linked to anew fund managed by Morley Fund Management (Morley).
The bond aims to deliver a gross income yield of 7% per annum or2.5% above the Bank of England’s base rate, if higher. WPMand Morley have specifically designed the fund to deliver a stableand comparatively high level of income by giving up excess capitalgrowth potential for enhanced income now.
Some of the key features of the bond are:
- Targets a particularly high level of income – comparableto that of a corporate bond fund – but also offers thepotential for capital growth.
- Income paid quarterly.
- Income reinvestment option.
- Minimum investment of just £5,000.
Morley will actively manage a balanced portfolio with atraditional mix of 60% equities and 40% bonds.
- The equity element of the portfolio will be invested inapproximately 100 lower risk, higher yielding, global stocks fromthe MSCI universe.
- The bond portfolio will be invested in global convertiblebonds, convertible preference shares and cash with the bondshaving a bias towards investment grade issues.
This portfolio mix is expected to yield around 3.5%. Additionalincome will come from an active programme of selling covered calloptions on approximately 80% of the equity portfolio, thus givingup excess capital growth potential and using the premium earned toenhance income now.
Testing has shown that call options will typically havequarterly strikes of between 105% and 110% of current prices thusgiving the potential further portfolio growth, albeitrestricted.
The Global Distribution Bond is a medium term note security or‘MTN’ with a 20-year open-ended term and issued by afinancial institution, which holds at least a ‘AA’Standard & Poors’s credit rating.
The bond is available on a fixed price basis through to 18October after which the price will change in line with fundperformance. Dealing in the Bond is daily with the price determinedusing a mid-day forward valuation point. Please note the GlobalDistribution Bond is not a capital protected product and income isnot guaranteed.
Commenting on the launch of the bond, Colin Dickie, director ofWoolwich Plan Managers, said: "The demand for equity income fundshas never been greater but often starting yields are too low andleft investors with the conundrum of eroding capital and hopingthat subsequent equity returns will restore order. The GlobalDistribution Bond specifically addresses this – investorsreceive a high yield without destroying capital growth prospects.The last few years have been difficult for investors as they try tofind returns in uncertain markets. In a market where future growthexpectations remain modest but with high volatility, the Bond iswell suited to this environment. The active management link withMorley is a significant and welcome addition to the investorproposition as it can clearly demonstrate the skill of an enhancingactive call option strategy."
Tom Wills, lead investment manager at Morley Fund Management,said: "By using the options market, we are able to generate anincome from each stock and sell excess upside to provide a downsidecushion - ideal for lower risk investors. The balanced portfolio iswell diversified across global markets and sectors and we areconfident that we can achieve the target income yield forinvestors."
Intermediaries can contact Woolwich Plan Managers on 0800 0857929 for further details or go to www.wpmdownloads.com. Retail investorsshould contact their financial advisers for further details on theWoolwich Global Distribution Bond.-ends-
For further information please contact:
Woolwich Plan Managers
For product and structuring related queries:Emma Rees 020 7699 2434
Morley Fund Management
Forinvestment related queries: Monina Villaroman 020 7809 8618
For road show schedules and information, please contact WoolwichPlan Managers.
Notes to Editors
*About Call Options – Definition andExample
A call option gives the holder the right to buya stock at a specific price (the strike price) at a future point intime. A covered call option is a call option that is sold on astock that is held by the seller. Buyers of calls hope that thestock will increase before the option expires. If the call optionis exercised the seller of the option is covered because he/sheholds the stock (i.e. the liability on the call option is fullyoffset by the increase in the stock price above the strikeprice).
Example: If the fund managers decide thatL’Oreal is a good buy, they might buy the stock at one euroand then sell a call option (or the right to buy it in threemonth's time at €1.10) for 2 cents. This means that if theshare price rises to €1.20 euros, the third party can buy itfor €1.10. The fund managers will have made not only 2 centsincome from the call option but also 10 cents in capital growthfrom the market.
WPM Global Distribution Bond - KEYINFORMATION
Initial fixed price of Note: 50p
Pricing method: Forward
Minimum initial investment: £5,000
Pricing times: 12:00
Minimum additional investment: £2,000
Dividend frequency: Quarterly
Initial charge: 5.25% of net investment
Xd dates: 31 March. 30 June
Annual charge (also TER): 1.65% plus 10% of any annualperformance in excess of charges and the yield target
30 September, 31 December
Payment dates: 6 weeks later, typically on or around the15th of the appropriate month
Investments into the Global Distribution Bondcan be made via a Maxi ISA or outside of an ISA from £5,000. Themaximum one can invest in an ISA is restricted by the annualallowance and the minimum top-up is £2,000. Any existing ISAs andPEPs can be transferred into the Global Distribution Bond withoutlosing any tax advantages.
The value of an investment in the GlobalDistribution Bond and any income from it can go down as well as up.Investors may not get back the original amount invested.
Woolwich Plan Managers
Woolwich Plan Managers (WPM) is one of the major providers ofstructured investment products in the UK and draws upon thestrength and market knowledge of the Barclays Group to deliverinvestment opportunities for investors. WPM is widely known for itsexpertise in producing competitive and near constant term basedstructures, most recently its new Capital Plus, Capital Growth andAccelerated Growth Plans all of which target specific marketsegments on a risk rated basis.
Woolwich Plan Managers Limited is authorised and regulated bythe Financial Services Authority.
Further information about Woolwich Plan Managers can be found atwww.wpmdownloads.com.
Morley Fund Management
Morley is one of the largest derivatives managers in the UK withover £15 billion derivatives positions.
The Global Distribution Bond portfolio will be managed by fourmembers of Morley's team: Tom Wills, David Clott, Iyad Farah and EdWiltshire. Wills and Clott manage Morley’s convertible bondfunds and will supervise the investing of convertible bonds andconvertible preferred shares in the portfolio. Farah and Wiltshirelead on the equities and call overwrites.
Morley Fund Management (‘Morley’) is anindependently managed, London based, asset management business withover £114 billion* under management (as at 30.06.04). It activelymanages a diverse range of asset classes and employs in the regionof 900 staff worldwide based in London, Singapore and an associateoffice in Boston**.
Morley is a wholly owned subsidiary of the Aviva Group andmanages both institutional and retail funds under the Morley brand.It also acts as investment manager for a range of retail investmentfunds, marketed in the UK by Norwich Union, and international fundsmarketed under the Aviva Funds brand.
*Not including mortgage assets
**Morley Fund Management International Limited, an Avivacompany
Awards to Morley Fund Management:
- Property Week Awards 2004 - Best Property Fund Manager
- Pensions Management Provider Awards 2003 - Best Property FundManager
- Fund Manager of the Year - Pensions Week Awards 2002
- Specialist Manager of the Year - UK Pensions Awards 2002
- Insurance Fund Manager of the Year (awarded to Norwich Union)– S&P’s 2002
- Sustainable and Ethical Investment and Asset Management Award -Liveable City Awards 2002
Further information about Morley Fund Management can be found at http://www.morleyfm.com