Market reacts to volatility

Interest in capital protected products has increased during the last month due to market volatility, said Aviva general manager of wealth management products Andrew Barker.

“Our call-centres are getting more advisers asking about capital protection products, which is understandable with the volatility in the markets,” he said.

“People are concerned about losing the gains in their portfolios and going backwards with their savings.”

Capital guaranteed funds are not new and have been around since the 80s, when life companies introduced them as early financial planning products.

“It is the mums and dads who are investing in superannuation that want capital protected products now,” Barker said.

“And pre-retirees are looking to protect their capital in light of market volatility.”

He said the level of enquiries for these products has grown dramatically since July 1, which is due to the levels of funds held in cash since the June 30 rush into superannuation and market volatility.

At the beginning of August, Aviva launched a capital protected fund that Barker admits was perfect timing.

“A key benefit is that the protected amount is the highest month-end value achieved in the year up to June 30, 2008, meaning that the protected value can be even greater than the initial investment amount,” he said.

“Therefore, at least the value at June 30, 2007, is already locked in — we call this ‘100 per cent plus’ capital protection.”

The new product is available through Navigator, which Barker said allows advisers to wrap it in with the client of other investments.

However, the product is not just designed for volatile markets, as some sophisticated investors have been using them for years to lock in gains.

“We have found they are a product for all markets, as in times of volatility the mums and dads want them while in boom times sophisticated investors use them,” he said.

“Traditionally, capital protected products are seen as a defensive product, but we have found they are used by aggressive investors at certain times.”

Barker said in the past the cost of locking in the capital usually cut 2 per cent off an investment, but modern capital protected products were designed to be more affordable.

“With these products today, you can lock in the growth of capital for as little as a $1 a day,” he said.

“And we still find there are nervous investors in the high end of the market who want to lock in gains despite their investing sophistication.”

The Aviva capital protected fund will remain open until the end of May next year.