A friend is looking at moving a pension to a new provider. After some research it turns out that an in specie transfer is not available and she could be "out of the market" for anything between a few weeks and a couple of months.
I am not a financial expert by any means but I am aware of products such as futures and options that can be a way of protecting oneself against a move in the market. Although I realise usually these products would be used by companies looking to fix a price. I can picture a tractor manufacturer in Poland signing a deal with an Argentine farmer with payment in 3 months, and desiring to protect against a currency move.
Although each portfolio might be unique given the many underlying assets, I don't understand why a fund management company could not offer their customers the option to protect themselves with a option/forward/future (sorry for my lack of precision) to protect themselves against market volatility. Even though the instrument (let's say FTSE100 or World MSCI) might not be perfect it would certainly correlate to the market better than cash waiting to be transferred from one provider to the other.
The other complication that I am not completely familiar with is that - as I understand it - a future protects against the downside but allows the holder to benefit from the upside (I think) which means that the instrument would be more expensive than what it might otherwise be. Is there an instrument that operates purely as an insurance policy which effectively would I suppose would be priced as the aggregate risk plus operating costs/profit margins ?
In the last month alone my friends total fund moved upwards by 6% which I think is due to markets performing relatively well during what appears to be a poor market backdrop - this just goes to show the amount of volatility in these times and how much being out of the market could cost. Although I can see things could just as easily have gone the other way.
In summary I have two questions - the first being what is the precise instrument one would purchase to achieve the protection I describe, and secondly - why do fund managers trying to entice new business not offer the option to go and purchase such a product on the customers behalf passing on the cost to the customer which I am guessing would not be exorbitant.
Thanks in advance, Peter.
