Capital Guarantee On Managed Account

Linear Asset Management have just recently released their SMA where they have a capital guarantee at 80% of portfolio value, with high watermark being set each day so that once you make the capital gains it is locked in even if the underlying assets fall in value. I would like to know how they arrange this guarantee? is it with an Option Trade? they mentions SWAPS in the brochure. Also with a capital guarantee to 80% why does this mean that you can have a higher LVR on a margin loan?

Here is the product link:

Linear Financial

 

Hi,

Interesting to read, I'd rather a product with 100% guarantee which are available in other products.

Cheers,

Dan

PS This is general information and not investment advice. Speak to your FPA registered Financial Planner before making an investment decision.

 

Yes it is %80 but this allows you to exit at any time and to switch from the guarantee to a non-guarantee anytime and lock in gains. You can switch back when you like to a guarantee too. Also you can make withdrawals as you wish. 100% guaranteed usually is a fixed term like MAN-OP for 5 years then there is no capital guarantee if you withdraw earlier.

 

I've not read up on the product, but an initial and significant observation is your use of the word guarantee. The product is not promoted as guaranteed, just protected. Even if they were to guarantee the capital, who are they to guarantee anything anyhow? The system sounds similar to one proposed for the recently withdrawn Navra Capital Protected fund; mathematically wonderfully and will never fail, for the protecter anyhow. Remember with protected products, they may return your capital (or 80% of it), but they can not return interest on loans or lost opportunity while your capital is tied up to maturity. Just ask the many Maquarie investors with a 100% loan on their products...

 

Yes good point. In this case though there is no date on which you have to wait to get your funds out (maturity date), you can withdraw at any time and be sure of getting 80% of the high water mark for your investments since they were purchased. As it is an SMA there is no distribution phase as such and from experience a holder can check their individual holdings at any time. I will check with them tomorrow to see how the guarantee is structured.

 

This clause makes the product better than the one mentioned above, at least it can poke its head out of the safe cash burrow it hid in when the market crunches, and you are not stuck in cash until maturity. Better that is, if you want such a product.

Linear Financial