Sunday Star Times talks Rainbow

Financial product article:  01 October 2006

Product:  Combi Series 3*

Offerer:  Liontamer

Offer dates:  Open now, closes on November 17

How it works:  Investors won’t have seen anything quite like this.  It’s an investment that lets the manager profit from hindsight.  The fund is one of Liontamer’s capital protected series, which have been remarkably successful as they promise to return all of an investors’ cash regardless of what markets do.  This is the third commodities-based fund the group has launched.  Its last one has so far doubled investors’ money.  Liontamer funds do not invest directly in the assets to which their returns are linked, and use complex financial engineering to produce returns.  In this case returns are linked to the performance of oil, aluminium, copper, nickel and soft commodities (agriculture).  There are two sets of units:  Rainbow tracker units which give 100% capital protection and 100% of the rise in the basket of commodity prices over five years, and Rainbow booster units with 90% capital protection and 130% of the rise in commodity prices.  To calculate returns at the end of the investment, Liontamer will drop the worst performing commodity altogether (the hindsight element), and then weight the top performing three at 30% each in the portfolio, and allocate 10% to the fourth best.  That means 90% of returns are calculated from the best performing three commodities.  How do they do it?  Clever mathematical modelling based on the difference between spot prices for commodities (what they are worth now) and future prices, which are discounted because thing such as bad weather, hurricanes, strikes at mines, earthquakes, etc. can disrupt supply.

What we like:  Hindsight in an investment is as close to investment nirvana as it comes.

What we don’t like:  Commodities have done very well, so there is a heightened chance of one, or more sectors falling over the lifetime of the investment.  The group only sells through advisers, so there are no cheaper deals for going direct.  Investors need to remember, their money is locked up for the term of the investment.

Conclusion:  It’s just as well Liontamer has built a track record for trust, because there are few investors who will be able to grasp how this investment works.

*COMBI Series 3Commodities fund Trust 17