ftse 100 future prediction

Hi everyone,
I have £70,000 invested in a bond linked for 3.5 years to the ftse 100.
What thoughts about it's future rise ( or fall ) over this period do you have?
I would be very interested in your comments.
Thanx,
Mr Wayne Doherty

waynedoherty said:

Hi everyone,
I have £70,000 invested in a bond linked for 3.5 years to the ftse 100.
What thoughts about it's future rise ( or fall ) over this period do you have?
I would be very interested in your comments.
Thanx,
Mr Wayne Doherty

Click to expand...

Hi Wayne, Welcome to t2win. You will find most contributors to this site are short term traders ie. day traders holding for seconds to hours, to swing traders holding positions for a few days.

With trading it is impossible and in my view bad for your bank balance to form any opinions as to market direction as you don't argue with the market, its best to trade with the current trend on a daily basis.

Nobody can tell you what the ftse will do next week never mind in three years time the only consolation you have is that history is on your side to the upside.

Good luck with your investment.

schoe said:

Nobody can tell you what the ftse will do next week never mind in three years time the only consolation you have is that history is on your side to the upside.

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Wayne has a bond linked to the FTSE Index (of shares). Is history really on his side to the upside?

Well if it's James Bond he'll be fine :cheesy:

Seriously - There ain't no easy answer m8 - when you got in you took the risk like everyone else.

TheBramble said:

Wayne has a bond linked to the FTSE Index (of shares). Is history really on his side to the upside?

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Thanks Tony ! Welcome back by the way I observed your spat with interest and kept a discreet silence !

I admit to knowing nothing about Bonds, except 007 do they move in the opposite direction to stocks?

schoe said:

I admit to knowing nothing about Bonds, except 007 do they move in the opposite direction to stocks?

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There is an inverse relationship, but it's not fixed. If one is doing well, the other is generally, though not always, not.

For a very basic explanation of the difference:-

http://www.msfinancialsavvy.com/archive/stockbonddiffer.html

If Wayne has a bond linked to the FTSE-100 I imagine he has found someone who is guaranteeing him his £70K back in 3.5 years time and presumably an above average annual return on his investment in the interim.

Given the inflated valuations of stocks in general and low yields obtainable in the form of dividends, stocks are unlikely to provide decent real returns over the next 5 years or so. Careful analysis shows that the bulk of increased profits reported during the last 3 years are an illusion or due to cost cutting; sooner or later there are no longer any jobs to cut what happens then? Are Barclays, HBOS, Vodafone, GlaxoSmithkline etc. making more money than they made 3 years ago? Are their shareholders better off than they were in 2000? NO.

It is very easy for people to blame terrorism or the dot com debacle for a fall in market returns but that has nothing to do with a fall in returns for the likes of Marks & Spencer, Vodafone, Sainsburys or LloydsTSB. Management sat still and believed that they could do nothing but the companies would continue to grow, never mind customer loyalty, better products/service, innovation etc. Some managers got so stupid it was almost criminal, look at the value destruction at Cable & Wireless, Vodafone, GlaxoSmithkline, BTR (now known as Invensys) etc.; bad managements have cost the shareholders a packet and that money is unlikely to be recovered. Why would anyone buy a business that grows at 20% per annum for a 100 times earnings or consider paying 5 times net assets for an asset based company?

The days of indiscriminate buying and holding as practised by the average fund manager are gone, only the adept stock pickers will make decent returns for their investors over the next 3 to 5 years and as such, those that have large sums to invest will have to look carefully before investing their nest eggs.

waynedoherty said:

Hi everyone,
I have £70,000 invested in a bond linked for 3.5 years to the ftse 100.
What thoughts about it's future rise ( or fall ) over this period do you have?
I would be very interested in your comments.
Thanx,
Mr Wayne Doherty

Click to expand...

Perhaps you should have asked this question before you invested?

The Dow has to rise about 15% from current levels to make a new all time high.
The S&P has to rise about 25% from current levels.
The FTSE has to rise about 40% from current levels.


The UK market is showing poor relative strength compared to the US markets which
it tracks. I think this maybe something to do with Socialist government we have at present.
New labour has raided the FTSE and redistributed this wealth to those who will never
invest a penny in the markets. The FTSE should be about 1000 pts higher at this stage.

I wouldnt buy and hold the FTSE while this lot are in still in power.

waynedoherty said:

Hi everyone,
I have £70,000 invested in a bond linked for 3.5 years to the ftse 100.
What thoughts about it's future rise ( or fall ) over this period do you have?
I would be very interested in your comments.
Thanx,
Mr Wayne Doherty

Click to expand...

Hi Wayne,

Have a look at this - http://whatinvestment.money.msn.co.uk/msnwi17.htm

It really depends on what type of bond you have purchased, does it guarantee your capital, provide a min return, and what fees are charged - to protect your capital, do you participate in 100% of the FTSE upside etc.

I don't suppose you're trying to answer an essay question or something are you?

Best of luck,

Ras

i really must buy myself a new stable door. the horse made a right mess of the last one.

waynedoherty said:

Hi everyone,
I have £70,000 invested in a bond linked for 3.5 years to the ftse 100.
What thoughts about it's future rise ( or fall ) over this period do you have?
I would be very interested in your comments.
Thanx,
Mr Wayne Doherty

Click to expand...

Sounds like an Insurance Company bond comprising a balance of f ftse100 company shares to me.

If so it's designed to track the performance of the index more or less exactly (less the usual charges and spread etc).

The question you need to ask/ research is: from present valuations, what level is the index likely to achieve 3.5 years from now? - Bit like asking how long is a piece of string really.

My own view, for what it's worth, is that you'll be lucky to see any growth at all over that period and could even see your capital shrink. I subscribe to the school that regards 2000 as the start of a secular bear market and that the bull run up from March last year is just a counter-trend rally. If that is correct then we will see index lows close to or even lower than the March 03 lows over the time-frame you indicate. If it is wrong then the 2000/2003 bear run was the shortest secular bear in history and the new bull started from fundamental valuations higher than pretty well any other secular bull start in history.

The trick of securing worthwhile returns from 'buy and hold' index investing is to buy when valuations (things like p/e ratios etc) are historically low - ie every 7-10 years or so. They certainly aren't low right now so, if history is any guide your upside (if any) is strictly limited. OTOH - maybe the world has changed and a new investing paradigm is emerging - as was alleged just before the dot-com bubble burst

There's lots of stuff out there on all this if you care to research it. Try this for starters:
http://www.howestreet.com/story.php?ArticleId=236&PHPSESSID=9b1cc3361352623fd63f9e99c6873f36

BTW - DON'T construe any of this as investment advice. It categorically is not. It's just my own ever so humble opinion, that's all.

"(things like p/e ratios etc) are historically low - ie every 7-10 years or so"...ironically do you really think the financial services industry will be offering this type of product if or when the aforementioned period arrives ? ....remember it's all about transparency...when the probabilites shift transparently back to the upside I suspect these products will be as extinct as the dodo..

chump said:

"(things like p/e ratios etc) are historically low - ie every 7-10 years or so"...ironically do you really think the financial services industry will be offering this type of product if or when the aforementioned period arrives ? ....remember it's all about transparency...when the probabilites shift transparently back to the upside I suspect these products will be as extinct as the dodo..

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They've been around for ages already. I used to manage a couple of Broker bonds myself back in the eighties. Very similar - all assests in custody of a large insurer with strict rules about the allowable fund asset categories etc (in my case it was authorised unit trusts). The Insurance company (Life Office) effectively acted as the trustee; I acted as the fund manager.

Index tracker bonds are similar with the balance of the assets reflecting the ftse constituents. The Insurance Companies make their turn on the b/o spread; the manager from management fees (usually 0.5-1% of the fund pa). In the case of an ordinary insurance company bond, trustee and manager are one and the same - or at least employees of the same corporate entity.

Of course it's their sales people and marketing departments that push these products and, earn commission from the opening spread - don't know what it is now but used to be as much as 6%! - nice little earner eh? - In other words your fund has got to grow by at least that much before you can get out at break-even, let alone ahead, then deduct another 0.5 - 1% pa from any growth (or decline!) as well!

Peter,
had no idea the tracker style product was that long in the tooth..I've only seen them pushed in the last few years... I might give it a nod next time FT hits 2500 (that should give the readers a good chuckle)

I suspect that this is a bond that aims to track the FTSE using a combination of cash, gilts and options over a fixed period of typically 3.5 or 5.5 years. Basically they advertise that you invest (say) £10,000 which is guaranteed to be returned in full at the end of the term, plus a %age of any growth in the FTSE. If the index crashes then you still get back your £10k.

What happens is that 5% is deducted to pay commission to the introducer of the business. A further 4.5% (ish) per annum is then deducted and used to buy some call options. So for a 3.5 year fixed term, about £1500 is used to buy call options with 3.5 years to expiry. The balance of the investment is put in cash or gilts and the interest is used to bring the balance of the original investment back up to £10k by the end of the term, so is never actually exposed to the stock-market. If the index rises, the profit comes from the call options. If the index dives, then the calls expire worthless, but by then the capital is back up to £10K so you get your original stake back.

Some of the older style bonds were known as "precipice bonds", because you only got all your money back provided that the FTSE never dropped by more than a fixed %age (typically 20%), and if it did, then there would be a progressively increasing loss of capital. This is because in addition to buying call options they also sold put options about 20% below the market. Provided the FTSE never fell more than 20% then they would expire worthless and all the premium would be kept, but a larger drop would leave the short puts "in the money" and the loss would be deducted from the capital. These "precipice bonds" have largely been discredited now because so many got hit by drops in excess of 20%. With some, losses if the index dropped by more than 20% racked up at 3:1 so you could lose your entire investment with a 33.3 % fall in the FTSE - and some people did!

I guess these types of product have their place, but as the capital is never actually invested in the stock-market there are no dividends. If the FTSE is yielding 4% in dividends, that means that over a 5.5 year period you are foregoing 22% in potential growth. A large part of the growth in a long term investment comes from reinvested dividends, so my view FWIW is that you'd be better off investing in an equity income fund, or a portfolio of self selected high yielding stocks, and accept the risk!