The kind of innovation we could do without

With interest rates looking likely to stay lower for longer, one commentator in the papers this week said that investors will need to keep looking for “innovation” in products if they want to beat inflation.

However, the very word “innovation” makes us nervous at MoneyWeek, so let’s look at two innovative new offerings for retail investors. Are they any good?

First, the Football Talent Fund, an offshore fund set up by one-time England manager Terry Venables. It’s designed to finance the development of young football players across the world. The plan is to raise £5m to pay for the training of the players, as well as a share in a Portuguese club, which will act as a feeder club to leagues around the world.

And the returns? The fund predicts investors will make 12% a year, according to The Mail on Sunday. The money will be generated by taking a cut of the “agency rights” of all the players who move through the Portuguese club.

This will include a slice of transfer fees, marketing income and a player’s future earnings. This sounds like a nice idea – and it is clearly innovative. But it is also slightly bonkers.

It isn’t regulated. It is super-expensive – the ongoing charges will come in at 3%  plus, says Darius McDermott of Chelsea Financial Services. And the returns are entirely dependent on the ability of a few former football players to choose and train a few new ones. McDermott says he wouldn’t touch it with a bargepole. Nor would we.

The second product allows you to buy your very own room in a care home to rent out, says Richard Dyson in The Daily Telegraph. Hand over £70,000 and you could own a room in the Calderdale care home, which is currently under development. The room comes with a guaranteed £7,000 annual income.

Better still, the developer promises to buy the unit back from you after ten years for £87,500. This sounds like an innovative way to get into a market that can only
grow. But it’s actually very dangerous. As Dyson points out, this kind of unitised property investment has what one might politely call a “patchy” record of success.

Returns get eaten away by overpriced management contracts; the guaranteed returns are small compensation for the overpricing of the asset; and there is often no secondary market for investors to sell into.

Finally, there is the promise to buy your unit back. If inflation runs at 2% a year on average for the next ten years, £87,500 will just about make you even in inflation-adjusted terms. If inflation is any higher, you will have lost money in real terms. We wouldn’t touch this one with a bargepole either.