Courtiers: how we mitigate volatility

It can really work against us, for our clients and versus our peers, when they see their valuation drop daily. It’s not attractive in a Cautious Risk fund, where people want lower volatility.

We’ve worked to ensure our Cautious Risk fund has a bit of protection in there for clients, so when the markets go down, the protection kicks in and lowers the volatility.

If a structured product is in there and the mark to market pricing takes a hit, it impacts figures and the client sees this.

It doesn’t matter if the long-term outcome is good; they are concerned if the short-term outcome is poor.

It has done brilliantly over two years, though, so this is really a sentiment issue.

What are some of the exchange traded funds (ETFs) you hold?

We have a long position in Latin American equities in our funds, via a db X-trackers ETF. In our model portfolios, we have fixed income ETFs, the FTSE All Share, the S&P 500 and the iShares MSCI World.

While we hold the db X-trackers Latin America, we are looking at this, because of the lack of love we have for Brazil. We have an issue with the state-owned companies it tracks – Petrobras is my problem.

Lots of companies will do well and the Brazil story is attractive; but we could end up with a shift to a more active type of product, due to the large exposure in the index to state-owned Petrobras.

What’s your view on the outlook for fixed-income market and how are you implementing this exposure?