Summer Sizzlers, Part 2 – Which Investments are hot this Summer?
As we move toward the end of August and thoughts of the summer months start to move towards Autumn, we take a look at what has been a very busy time of year for investors. British summer officially started on 21st June and with a competitive range of income and growth investments plans on offer, we bring you our five most popular plans so far this summer.
Income remains top priority
As you might expect, with savings rates continuing at uninspiring levels and many savers inevitably looking to take on more risk in the hunt for higher returns, income features heavily in the summers most popular plans. However, there are also some compelling growth stories with a defensive strategy around the FTSE as well as the seemingly ever-popular Kick Out plan, currently offering the potential for double digit returns.
Both savers and investors have also benefited from the greater freedom for ISA transfers, because since 1st July you can move from a Cash ISA to a Stocks & Shares ISA and vice versa. These plans have also been particularly popular with ISA investors using the new £15,000 ISA limit.
1. 5.64% fixed income each year, monthly payments
Nothing seems to be able to keep the Investec Enhanced Income Plan from taking top spot at any time of year and the summer is no exception. Our ISA season best seller continues to a top performer with the current issue paying a fixed annual income of 5.64%. The plan pays monthly (paid as 0.47% each month) regardless of what happens to the FTSE. Capital is at risk if the FTSE falls by more than 50% during the investment term. If it does, and the Index also finishes below its starting level then your original capital will be reduced by 1% for each 1% fall, so you could lose some or all of your original investment.
Fair Investment view: “Knowing exactly how much you will be paid, when and for how long are clearly features which have struck a chord with both savers and investors and the monthly payment frequency is a popular feature. Without the need to pay tax if held within an ISA, this plan also offers an attractive opportunity to use your New ISA allowance to receive a fixed and regular tax free income.”
2. 10.50% each year, even if the FTSE stays flat
Although Investec’s income plan has been a consistent top performer, a very close second this summer was their Enhanced Kick Out plan, with the current version offering the highest rate of any kick out investment based on the performance of the FTSE 100 Index. The plan will return 10.50% per year (not compounded) provide the value of the Index at the end of each year (from year 2 onwards) is higher than its value at the start of the plan – so although the FTSE does have to rise, this only needs to be by a single point. Your initial capital is at risk if the Index falls by more than 50% during the term and also finishes below its starting value, in which case your capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.
Fair Investment view: “Knowing how to invest when the FTSE is high continues to be a challenge for investors, but the potential for high returns as early as year 2, even if the FTSE only rises by a single point, perhaps helps to explain why this is our best selling plan with both growth investors and those looking for New ISA and ISA transfers ideas. The combination of high growth potential and the ability to mature early could make for a compelling opportunity in the current market.”
3. 7.62% p.a. fixed income, monthly payments
The second income plan also offers a fixed income, paid to you regardless of the performance of the stock market. The FTSE 5 Monthly Income Plan from Meteor offers 7.62% annual income (paid as 0.635% each month), which is significantly higher than Investec’s plan – the main reason being that the return of your initial capital is dependent on the performance of five FTSE 100 shares rather the Index as a whole. Should the value of the lowest performing share be less than 50% of its value at the start of the plan, your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.
Fair Investment view: “The fixed income on offer equates to a total return of 45.7% over the term of the investment and if you invest within an ISA, the 7.62% fixed income is equivalent to 9.525% p.a. for basic rate tax payers and 12.70% p.a. for higher rate tax payers. This investment could appeal to income investors looking for a high level of fixed and regular income however, the fact that the return of your initial capital is based on the performance of five shares rather than the Index as a whole should be a key consideration.”
4. Up to 9% income yield, quarterly payments
The third income entrant is the FTSE 4 Quarterly Income Plan from Focus which offers up to 9% per year. Your income is dependent on the performance of four FTSE 100 companies and a quarterly payment of 2.25% is made provided the value of all four shares at the end of each quarter are at or above 60% of their value at the start of the investment. If one or more shares are below this level, no income payment will be made for that quarter. The return of your initial investment is also dependent on the performance of the same four shares. On the final day of your investment should the value of the lowest performing share be less than 50% of its value at the start of the plan, your initial capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.
Fair Investment view: “Those seeking income from their investments often put the potential yield and frequency of payments as their top priorities, so the opportunity for a high level of income and quarterly payments is appealing. With the majority of FTSE 100 companies currently paying dividends under 5%, the potential for 9% annual income could be a timely one but the fact that both the income and return of capital are based on the performance of four shares rather than the Index means this is a higher risk investment than others available.”
5. Returns even if the FTSE falls up to 10%
Our final entry is a defensive growth investment for those who are not confident the FTSE will continue to rise significantly over the medium term. The FTSE Defensive Supertracker from Morgan Stanley tracks the FTSE 100 Index between the start date and end date, and then multiplies any growth by 3.1. The defensive feature of this plan is that the growth is based on any rise above 90% of the FTSE’s starting value – so, for example, if the FTSE fell 5% you would still receive a 15.5% return (5% x 3.1), and if it rose by 5% you would receive a 46.5% return (15% x 3.1). The maximum return is capped at 62% of your initial investment.
If the FTSE has fallen by 10% or more at the end of the term, no return will be paid. You initial investment is returned in full unless the Index has fallen by 50% or more at the end of the term. If it has, your capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.
Fair Investment view: “This type of plan is proving popular with investors concerned about the historically high level of the FTSE and would therefore like to include a defensive element to their investment. By receiving over three times any rise in the Index, the plan also offers investors the opportunity to beat the stock market and could appeal to those who think the FTSE might fall slightly, stay the same, or rise in the coming years but not significantly.”
How to apply
When you click for more information on any of the above plans you will be able to request a brochure pack which will be sent to you by post and email. This will include everything you need to invest, whether applying for a New ISA, transferring existing Cash ISAs and/or Stocks & Shares ISAs or making on-ISA investments. Also note that these plans may close early so it is important to submit your application as soon as possible. Application deadlines, minimum investments and arrangement fees apply. Our helpdesk is also available on 0845 308 2525 to answer any questions you may have.
No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice. Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. ISA transfer charges may apply, please check with your provider.
These are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment due to the performance of the FTSE 100 Index or shares listed within the Index. As share prices can move by a wide margin, plans based on the performance of shares represent higher risk investments than plans based on the FTSE 100 Index as a whole.
There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index or shares listed within the Index is not a guide to their future performance.