Friends Provident International embraces volatility

Friends Provident International is launching new investment-linked funds that give investors the opportunity to utilise stock market volatility as part of their investment portfolio.

The concept of volatility often divides investors' opinions. The fear of downside volatility associated with stock market falls often means investors opt for secure cash deposits. Concerns about volatility when stock markets rise are often ignored by investors, if they believe the potential returns are an adequate compensation for the risks involved. Investors may accept short periods of market falls if the underlying trend is upwards.

The CAAM Volatility World Equities Fund (USD share class) utilises volatility, traditionally considered as a risk indicator, as an active source of performance. The CAAM investment team optimises exposure to fluctuations in the 1-year implied volatility of the world's most important equity indices to generate performance for investors uncorrelated to the movement of the wider asset class.

The approach to volatility is an active management, around a mean reverting strategy: take advantage of low volatility regime to be long volatility, but also benefit from high volatility environment by selling volatility.

At the opposite end of the spectrum, aiming to reduce volatility is part of the proposition for two new investment-linked funds from JP Morgan.

The JPM Highbridge Statistical Market Neutral Fund (USD share class) seeks long-term absolute returns in all market environments, whilst neutralising the general risks associated with stock market investing. This is achieved by taking long and short stock positions selected from a universe of mid and large-cap stocks and immunising the effects of general market movements or sector swings.

JPM Global Capital Preservation Fund (USD & EUR classes) aims to achieve a return in excess of its cash benchmark, by investing in a diversified multi-asset global portfolio of securities. Strict risk controls are designed to keep the fund's volatility below that of a direct investment in global equities.

Jim Henning, funds marketing and research manager at Friends Provident International said: "These new investment-linked fund options are designed to appeal to a range of investors from the risk averse through to the more sophisticated risk-seeking investor. Whilst nobody can predict short term market trends, these new additions help advisers seek out more diverse sources of return over the longer term and complement our traditional long-only investment-linked fund strategies."