I have written about Liontamer funds several times in these columns. This fund is Trust number 30.  Once again Liontamer is offering a product that is “different”.  Liontamer’s products are different because they are not your conventional funds which purchase underlying assets (shares, bonds or property) but instead use indexes. These capital protected funds are very popular overseas where new ones are offered almost every day.  Liontamer is now part of the Belgian banking group KBC and the bank is providing the capital protection.

In a 2007 report by the Renewable Energy policy network for the 21st Century (REN21) a high level global study was carried out on the use of alternative energies in both developing and industrialised countries.  The report shows that record amounts of investment in new renewable energy is taking place, especially amongst countries such as Germany, China, US, Spain, Japan and India. In 2007 alone US$100 billion was spent on alternative energy production. Yet alternative energy sources are still only a small percentage of the total global energy capacity.  It is expected the alternative energy sources will grow by 30% over the next 30 years.

Of the 15 companies that Liontamer has chosen six are in wind generation (or related manufacture for wind generation), four are in solar energy, two in hydro and individuals in biomass, fuel cells and geothermal.  The companies have been chosen from those researched by Liontamer’s parent (KBC) where they are already held directly by them within an open ended managed fund of 66 stocks.  That is, these companies are already well known by KBC, Liontamer has just picked out 15 of the best for this closed end fund.  

Note that this fund will not own the shares just track their price by a composite index of the average monthly price.  How it works is that after the fund closes (October 24 2008) the index of the 15 companies is set by the share prices of each company on a day chosen within 5 days of the closure.  This sets the benchmark for the index.

The fund offers two choices of either tracker units with 100% capital protection where every dollar invested will be returned at maturity, or; booster units at 110% (1.1 times the rise in the index) for a guarantee of 90 cents in the dollar.  Both are for a five and a half year term but should they reach $1.80 within three years they will be terminated.  While it is possible to withdraw before maturity there are penalties and the capital protection is only given on the understanding that you remain fully invested to the end point.

Early bird interest is paid from date of application receipt and paid in the form of additional units at the closing date.  There is an initial entry fee of up to 3% which can be rebated by a financial adviser.  Several existing investors in Liontamer products have expressed some reservations about investing in another fund.  I do not see this as a problem as it is no different than investing in several funds of AMP, ASB, AXA, ING or Tower.  Liontamer’s funds are all unique and managed in the same way as any fund managers individual unit trusts are managed, as an autonomous body. See your financial adviser for an investment statement.

Peter Smith is a Certified Financial planner and is the Principal of Peter Smith Financial Services Limited Dunedin. Email: finance@petersmith.co.nz A disclosure document is available on request and free of charge.