Bonds yield 'poor profits'

By SYLVIA MORRIS, THIS IS MONEY AND DAILY MAIL SAVINGS EXPERT
Updated:

 

Some investors continue to suffer dreadfully in with-profits bonds. The so-called experts who run these funds, which invest in shares and bonds, have managed returns of as little as 1.5% a year over five years, figures out last week reveal.

One manager - Abbey National Life - has returned an average 0.8% a year over ten years, turning £10,000 into just £10,839. Despite these abysmal returns, some still charge a hefty fee if you want to take your money out.

Money Management magazine asked companies how much investors can expect from their £10,000 invested over five years to November 1.

The average bond made 6.4% a year, but some made less than 3% a year - that's less than paid by many savings accounts. Strong insurance companies running with-profit bonds have done better. Some bonds with the Pru have shown returns of 6.8%-7.6% a year on average, with 7.1%-9.2% at Legal & General and 6.6%-6.9% at Norwich Union.

The average tracker fund, which invests in shares and automatically follows the stockmarket, has done better, returning 11.6% a year. Even a balanced managed fund - which, like with-profits funds, invests in a mixture of shares, bonds and property - has turned in a much better 10.3%.

This under-performance is expected to continue. At financial adviser Towry Law, director John Richardson says: 'With-profit bonds will under-perform because companies do not put resources into actively managing them for policy-holders and there are high charges.'

With-profit bonds were popular among investors a few years ago. But falling stockmarkets from 2000 led companies to impose penalties on anyone who wanted to sell their bonds.

Some, including the Co-op, London Life, NPI, National Provident Life and Scottish Friendly, still charge penalties on some policies taken out in 1999 or 2000, even though the shares have done well. The FTSE 100 index has risen by 65% from 3997 to 6586 since 2002.

Some offices, which no longer sell these bonds, show appalling results over ten years. National Provident Life came in at 1.4% a year, and both Pearl and Scottish Mutual 3.3%. The average over ten years on with-profit bonds was 4.3% a year.

National Provident Life has 85% of its money invested in bonds and cash, and nothing in shares. This is expected to boost the return on funds over the long term.

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