With profits bonds: Latest results

With profits have been seen as the dark sheep of investments in recent years. Despite their aim to smooth returns and ride out rougher economic climes, companies have again and again failed to stay true to this promise.

In the face of such a negative reputation, with profits bonds have proved somewhat more resilient than their endowment cousins. In the Money Management with profits endowment survey in November 2011, a survey of 210 IFAs were asked their views on the product and which they recommend. The majority, 51%, indicated a preference for bonds.

Although this is only a small sample of the IFAs across the country, this does show at least some appetite for with profits bonds. Our survey uncovered 31 bond options, the majority of which are available through IFAs. Of course, some of these are different permutations of the same bonds, but it amounts to the same thing: there are products out there, and there is demand.

Companies still selling with profits bonds have a point to prove. They are unlikely to attract new investors if their existing bonds perform badly, although admittedly the past 10 years has not been the most fruitful economic climate. It is still vital, however, to survey the companies that no longer sell bonds but still have investors on their books.

Ups and downs

Table 1 lists the cash in values of the best, average and worst performing bonds to 1 November 2011 over one, five and 10 years.

After something of a bounceback in 2010, the 2011 figures over one and five years have again dropped in almost every case. The 10 year figures offer a glimmer of hope, however, as the best, average and worst figures are all higher than in 2010.

The average has risen by £1,936 from £11,888 to £13,824; although this does not reach the levels of 2003 where the average was £17,452, it is at least a better return than last year.

The best 10 year figure of £16,805, with an AGR of 5.3%, is Wesleyan. It takes top spot not only for 10 years, but also six, seven, eight and nine years. Wesleyan still offers with profits bonds to customers, but only sells through its direct salesforce and products are not available through IFAs.

The bottom figure for 10 years is £10,812, representing a paltry AGR of just 0.8%. This comes from Scottish Widows, which did not provide data for this survey, so the figure is taken from the FSA Form 59 and therefore correct to 1 March 2011. Despite an uplift in 10 year figures across the board, the Scottish Widows figure is in fact worse than its equivalent figure of 1.1% in 2010.

The figures for one year, however, represent even more of a downturn. The best performing bond returned £10,736 on a £10,000 investment; a reasonable AGR of 7.4% by Foresters Friendly, but not coming close to last year’s top figure of £11,321, AGR 13.2%.