Market turmoil in 2008 has caused a surge of money into funds that invest in traded life policies, a report by Professor Merlin Stone of the Bristol Business School reveals.
Market turmoil in 2008 has caused a surge of money into funds that invest in traded life policies, a report by Professor Merlin Stone of the Bristol Business School reveals.
Traded life policies are US-issued whole of life assurance policies sold before the maturity date, which allow the original owner to enjoy some of the benefits during their lifetime.
The report, sponsored by Managing Partners, a provider of traded life policies funds, estimates that investment in traded life policies by both retail and institutional investors has risen by more than 50 per cent over the last year.
Professor Stone points out that the combined assets of the five largest funds distributed in the UK grew from USD405.2m on 1 November 2007 to USD621.4m on 1 November 2008.
The report estimates that investment by retail investors into these funds rose from USD101.3m to USD155.3m, or 53 per cent.
Managing Partners has seen investment in its own traded policies fund rise from USD38.8m to USD100.8m, or 160 per cent, over the 12 months to 1 November 2008.
Around 25 per cent of this has come from retail investors.
Professor Stone believes that one of the main reasons why funds investing in traded life policies are likely to grow in popularity among retail investors is that they could be a strong replacement for with-profits based investments.
Managing Partners research reveals that only 13 per cent of IFAs have a positive view on with-profits based investments and that 64 per cent of investors with these investments are unhappy with their current performance, with 25 per cent intending to stop investing in them.
Funds investing in traded life policies are relatively low risk and offer attractive returns of around eight to ten per cent, meaning that they could be a viable alternative to with-profits based investments.
Professor Stone says: ‘Traded life policies should – and no doubt will be – acknowledged as a significant asset class one day. They have proved to be uncorrelated with other asset classes, under the most difficult conditions seen on Western markets in living memory. If they can produce double-digit returns in such an environment, then it is hard to imagine the conditions in which they would fail to do so. With such a track record, a deepening understanding of them among investors and further refining of the market, traded life policies cannot fail to fulfil the potential described in so many respected studies of the market.’
