From the Editor: Fund launch season could be a mixed bag

The global economy appears poised on a knife-edge with commentators divided between the double dippers and the more optimistic who think we can escape plunging back into recession.

Markets have had a turbulent week as conflicting data from the US and the UK put investors in a tail-spin.

So how will fund providers respond to this environment of uncertainty as the traditional period of new launches gets underway in September?

Fidelity is one of the first of the big players off the blocks with its Equity Growth Defender fund. It aims to offer investors equity growth, while defending both capital and growth from the full impact of market declines. This sort of strategy will appeal to spooked investors, with the fund able to switch more of the portfolio into cash to temper market losses.

The open-ended fund is clearly a challenge to the many closed-ended structured products with the added advantage that there is no counter-party risk.

However, the fund does not offer guarantees, although Fidelity argues protection for the fund will be achieved unless the value of the equity holdings falls by more than 20% in a single day.

“The history of the UK stock market suggests this is very unlikely. In a period of sharply rising equity markets the fund may underperform but should outperform in a steep correction,” it says.

It is likely this sort of vehicle may still prove appealing after the next few months have passed, whether markets settle or not, as investors will feel they can benefit from FTSE gains. But, the decision when to move into cash and by how much will be taken by an asset allocation expert.

However, not all fund houses believe investors just demand safety first in the current climate. Both Castlestone and Neptune have unveiled funds investing in developing nations which may appear a step too far for worried investors as markets fluctuate.

Yet, the managers appear to have learnt from the mistakes of the past with these sorts of funds and are deliberately focusing on creating diverse and liquid portfolios.

There are still growth opportunities to be found, but it will be up to advisers to work out how much protection they require to cover clients if they take a risk too far.

Katrina Baugh, Editor, Professional Adviser