Recent rally helped offset the loss of Government bonus but account-holders are still suffering SSIA-holders had better prepare themselves to stay for the long haul, writes Gretchen Friemann

Despite the recent stock market rally, more than a quarter of a million equity-based SSIAs continue to languish in the red.

Meanwhile, those with fixed-rate deposit accounts are enjoying the highest gains and some investors predict these funds will show the best rewards by the end of the five-year scheme.

Last March the losses on some equity-based SSIAs were so severe that they wiped out the Government's 25 per cent bonus, although the recent rally - dubbed the Baghdad bounce because it followed the end of the Iraq war - has corrected this downward slide.

But those who opened their equity SSIA accounts near to the April 2001 launch date are still bearing the brunt of the global market turbulence compared to those who left it until the Government-imposed closing deadline of May 2002, because the greater exposure to the market downside means they have more ground to recover.

And while economists debate over whether the Baghdad bounce is simply a bear market rally or an indication of a sustained economic recovery, investors are reiterating their recommendations to equity SSIA holders to retain their accounts for at least seven years.

They remind policyholders that because money is invested on a monthly basis over five years, its average investment life is 2½ years - a relatively short amount of time to play the stock markets.

By holding onto the accounts, analyst argue that savers can ride out the storm and enjoy the high rewards of buying at the bottom of the market.

The problem is not everybody is convinced that the March lows plumbed the depths of this bear market.

While some analysts are heralding the Baghdad bounce as a leading indicator of the long-awaited recovery, others are dismissing it as another bubble, more about sentiment than economic fundamentals.

Some bourses have jumped more than 20 per cent since the rally began last March, with beleaguered technology stocks posting the highest gains.

But there were increasing signs last week that the recent spurt of growth may be tapering out as poor economic news and continued uncertainty returns anxiety into the market.

The bears point out that this is the fifth such rally since the start of the downturn in March 2000 and warn that the US may face a double-dip. If markets do slump once more, equity SSIA holders may see their recent gains, which have brought them to just below break-even, wiped out again with little time left to benefit from any sustained upswing.

The severe volatility dominating the markets appears to have spooked some institutions into not revealing the performance of equity-based SSIA accounts publicly.

A spokeswoman for Bank of Ireland said the organisation "has decided not to give out performance figures to the media because it makes customers nervous".

Instead the bank released a statement on the past performance and outlook for its equity SSIAs.

It said: "Equity-based SSIAs are medium to long-term investments [seven to 10 years\] on which some volatility is to be expected as their values fluctuate in line with stock market changes. The length of time customers leave their money invested will have the most bearing on how well it performs, and with SSIA investors having made between one and two years' contributions to date it is not appropriate to draw a negative conclusion about these plans at this stage."

Other institutions were more forthcoming. Mr Brian Woods, finance director of Ark Life, the life assurance arm of AIB, said equity SSIAs were still marginally in the red.

He said on March 1st, when the markets hit bottom, the managed funds, which incorporate fixed-income investments and equities, were down by 33 per cent.

In a stark illustration of the severity of this bear market, he revealed the global and euro-zone equity SSIA portfolios were down by 48 and 50 per cent respectively.

Equity SSIAs based on the ISEQ were down by 36 per cent.

However, he said the last quarter, which was rated this week as the strongest in five years, has significantly reduced these losses.

It is not clear how far the Baghdad bounce has cut earlier losses on equities at Eagle Star, as there were no performance figures available, but Mr Jonathan Daly, a products solutions actuary, said its specialist equity fund, Five Star Five, was "around break-even" and performing in line "with the market rally".

At Irish Life the double-digit losses suffered in March have recovered slightly. Mr Dermot O'Brien, market retail investments manager, said the popular Wisdomscope fund, was down by 7 per cent for those who started contributing the maximum in April 2002. This compares to more than 9 per cent for accounts opened in January of that year.

Although Mr O'Brien stressed that in the long-term equity products will outperform cash and fixed-income investments, he said that by end of the five-year scheme, fixed-rate deposit holders will outperform equity funds "because they have locked in good rates of return. But equities will fare better than variable-rate deposit accounts as interest rates look likely to fall further in the short-term."

According to Mr Fergus Ryan, an investment manager with Hibernian, their SSIA managed fund is just below break-even.

He said accounts receiving the full contribution and the Government's €1 for 4 bonus should have €7,930 but after factoring in stock market losses and charges, that figure is reduced to 7,200.

Hibernian is forecasting gains of between 8 and 10 per cent on equities this year and Mr Ryan, a committed bull, claims the next two years will average similar positive returns.

His sanguine outlook seems based as much on the inconceivability of a five-year bear run as it does on technical and fundamental analysis.

"If the markets fall for a full five-year duration, there will be much bigger problems than the performance of SSIAs to worry about. In that scenario, economies will be in dire straits,"" he said.