The kind of innovation we could do without

published 2 September 2014

With interest rates looking likely to staylower for longer, one commentator in thepapers this week said that investors willneed to keep looking for "innovation" inproducts if they want to beat inflation.

However, the very word "innovation"makes us nervous at MoneyWeek, so let'slook at two innovative new offerings forretail investors. Are they any good?

First, the Football Talent Fund, anoffshore fund set up by one-time Englandmanager Terry Venables. It's designed tofinance the development of young footballplayers across the world. The plan is toraise £5m to pay for the training of theplayers, as well as a share in a Portugueseclub, which will act as a feeder club toleagues around the world.

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And the returns? The fund predictsinvestors will make 12% a year, accordingto The Mail on Sunday. The moneywill be generated by taking a cut of the"agency rights" of all the players whomove through the Portuguese club.

This will include a slice of transferfees, marketing income and a player'sfuture earnings. This sounds like a niceidea and it is clearlyinnovative. But it is alsoslightly bonkers.

It isn't regulated. It issuper-expensive theongoing charges willcome in at 3% plus,says Darius McDermottof Chelsea FinancialServices. And the returnsare entirely dependenton the ability of a fewformer football playersto choose and train a fewnew ones.McDermott says he wouldn't touch it with abargepole. Nor would we.

The second product allows you to buyyour very own room in a care home torent out, says Richard Dyson in TheDaily Telegraph. Hand over £70,000 andyou could own a room in the Calderdalecare home, which is currently underdevelopment. The room comes with aguaranteed £7,000 annual income.

Betterstill, the developer promises to buy theunit back from you after ten years for£87,500. This sounds like an innovativeway to get into a market that can onlygrow. But it's actually very dangerous. AsDyson points out, this kind of unitisedproperty investment has what one mightpolitely call a "patchy" record of success.

Returns get eaten away by overpricedmanagement contracts; the guaranteedreturns are small compensation for theoverpricing of the asset; and there is oftenno secondary market for investors to sellinto.

Finally, there is the promise to buyyour unit back. If inflation runs at 2%a year on average for the next ten years,£87,500 will just about make you even ininflation-adjusted terms. If inflation is anyhigher, you will have lost money in realterms. We wouldn't touch this one with abargepole either.

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.