Maximising Value Through Excellence
October has been a tough month for investors, with financial markets showing increased volatility as recent economic news creates gloomy conditions.
Earlier in the month, Bank of America Merrill Lynch (BofA Merrill Lynch) released two surveys, neither of which will have soothed investor concerns.
In its Global Research Report, the organisation revealed that US$5.7 billion (£3.56 billion) fled European stock funds in the week ending October 15th. This is the biggest weekly withdrawal on record, the bank confirmed.
Furthermore, BofA Merrill Lynch’s Fund Manager survey showed investor confidence in the global economy and business profitability plummeted between September and October.
The index slumped 20 percentage points over the one-month period, with just 32 per cent of respondents believing worldwide economic conditions will strengthen over the next year. This is the lowest figure since 2012. More than three-quarters of those polled now believe growth and inflation is running at below-trend levels.
Monetary policy fears
Investors were also wary of monetary policy changes in the US. The country’s Federal Reserve announced on October 29th that its quantitative easing (QE) program has finished.
Unease over how the nation’s economy will react without economic stimulus is causing appetite for risky asset classes to plummet. Indications from the European Central Bank last month that it may not introduce its own QE scheme also spooked investors.
Emma Davidson, director and founder of Affinity Capital, believes the current state of financial markets reinforces the notion that all portfolios need protection.
“In an environment where you have economies that are flat or falling – which is where we are right now – it’s very scary for clients to want to enter the markets,” she explained.
“We’ve had quite a horrendous time of it, and due to that there’s been a lot of talk about fastening seatbelts among investors because markets have behaved so badly.”
Portfolio protection with structured investments
As investors explore ways to mitigate the risk in their portfolio, structured notes are likely to become an increasingly attractive option.
Davidson said these investments are multi-faceted and allow people to benefit from a range of market conditions, including flat-to-negative growth.
While the upside potential may not be as high, structured investments offer people much-needed protection during times of extreme market volatility.
“I think structured investments are very comforting to clients. As we go through this turmoil right now with markets plummeting and widespread uncertainty, this is a great time for people to be going into structured notes,” she added. “It’s really worthwhile from their point of view as they feel safer in lower-risk environments.”
According to Davidson, a healthy portfolio typically contains 50 per cent structured notes and the rest in other asset classes. However, clients are beginning to increase their proportion of structured investments.
For those looking to do this, she suggested as much diversification as possible, and recommended not purchasing everything from one issuer.
Would you like to learn more about how structured investments could lower your risk profile? Please contact Affinity Capital today for information on our services.
Registered Office
Liberty House
222 Regent Street
London W1B 5TR
