When the music stops, investors need protection

The prevailing low interest rate environment could leave many investors overly exposed to the volatility of share markets, a funds manager believes.

While many investors have benefited from strong performance in global equities in recent years, Grant Samuels Funds Management head of distribution, Damien McIntyre, warned they could be hit severely when the market turns.

Speaking at the launch of the Grant Samuels Global Equity Advantage Fund, McIntyre said corporations have been refinancing "at a rate of knots", taking advantage of low interest rates, but with the US considering a rate rise, he said there would be implications for share markets.

"The implications for fixed income markets when rates rise is generally not great," he said. "And when you look at the amount of corporate debt that's on issue — when equity markets get volatile, it behaves — not in line with, but it has a similar volatility to the equities themselves.

"So, there aren't too many places to hide, other than cash, and 5 per cent term deposits are a thing of the past.

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"This has led investors to gradually find themselves further and further out on the risk spectrum and for the most part, the last three years have been fantastic — people have made great money — but as we all know, the music stops one day, and it's always when we least expect it.

"So, we think it's sensible to try and find solutions for investors."

The new fund aims to manage sequencing risk for investors in global equities, by limiting the impact of downturns.

"The aim is to get at least 80 per cent [on the upside] and to try to lose substantially less than the market on the way down, giving you a higher base to recover [from], and we think that's prudent," McIntyre said.