[ F E A T U R E ]

 

 A SAFER TECH OPTION


UOB Asset Management launches a guaranteed fund that participates in the recovering technology sector.

Analysts are keeping a keen eye on the technology sector as signs that it will be one of the drivers of economic recovery become evident. They are quick to point out that the Nasdaq 100 Index has bottomed out and is expected to start going up within the year.

 

With the ongoing replacement cycle and new concerns from the security, aeronautics and biotechnology industries, the demand for new generation equipment, technology-driven solutions and parts is expected to rise. Participation in the recovering sector is therefore desirable at this point.

 

The dismal performance of tech-heavy Nasdaq in recent past, however, has kept even the bullish investors from the tech sector, especially from tech stocks. Unable to find security on their capital investment and return, some of them flock instead to low risk investment instruments that offer relatively low returns.
 


A GUARANTEED OPTION


In response to this reaction, UOB Asset Management has launched United Capital Guaranteed Funds 80PLUS. The fund, which offers potential returns of 80 per cent with a 100 per cent capital guarantee after a three per cent sales charge, is the first such product in the retail investment sector. There are no penalties for early withdrawal.

 

The very structure of the fund helps ensure its stability and profitability despite the volatility in the tech sector. At the outset, the funds will purchase a deposit with the initial investments to form the guaranteed portion. “About 90 per cent of the funds will be invested in bonds and the rest will be used to buy options and pay the manager’s fees,” says Glenn Lee, Head of Marketing and Business Development at UOB Asset Management. “The results are very transparent. The fund will virtually run itself until it matures, after which the manager will determine the value of the option based on the return formula that begins with an 80 per cent return” he adds.

 

The fund uses Nasdaq 100 Index as a benchmark because, like other indices, it has bottomed out and should be moving up. It also has the volatility to make the fund viable and allow it to provide an initial maximum return of 80 per cent. Other less volatile indices like Standard & Poor’s 500 and Hang Seng Index cannot match this.

 

UOBAM conducted a back test computation of the scheme for a 10-year period - October 1990 to October 2000 - and found out that it could historically offer a highest return of 14.7 per cent per annum and an average return of nine per cent per annum. The lowest it can offer is to pay back the initial capital less sales fees.

 

Lee is convinced that this is one of the best products on offer at this time. “We are not in a bull market now and aren’t likely to see one very soon. Only a careful consideration and understanding of the companies’ businesses can an investor hope to pick winners. It’s best to leave that to the full time professionals.”


 

HOW THE FUND WORKS


The fund’s returns are based on monthly performance of Nasdaq 100 Index. An 80 per cent return is allocated to every investor at the outset. For every month that the Nasdaq 100 Index registers a negative return, the corresponding amount is deducted from the 80 per cent.

 

When the fund matures in three years, whatever is left of the 80 per cent is given back to the investor as his earnings. If the Nasdaq registers a negative return of more than 80 per cent, the investor still gets back his initial capital, less fees.

 

Over a ten-year period, from 1990 to 2000, an investor into this type of fund will have realised a highest possible return of 51 per cent, an average return of 29 per cent, and a worst case scenario of 0 per cent return, but with capital intact, minus three per cent sales fee.

 


 

 

FUND DETAILS

Launch price

:

$1

Minimum investment

:

$2,000

Denomination

:

Singapore Dollars

Maturity period

:

Three years

Redemption fee

:

None

Sales charge

:

3%

Management fee

:

1% per annum