Stockmarket Falls: What Experts Do

Stockmarket Falls: What Experts Do
Tawali Papua New Guinea by Julian Cohen. Why?

When City whispers imply a correction in the stockmarket is about to happen, it’s worth paying attention, especially if you’re holding stockmarket investments

Could The Stockmarket Be About To Collapse?

In recent weeks, there’s quite a buzz in the City.  The word on the street among some of the best known names in fund management suggests the market is facing a fall.

Gervais Williams, the fund manager of two major funds, is one of the latest to show his hand.  He’s gone further than most, taking out a form of insurance against a fall in the FTSE 100.

In an attempt to protect one of his portfolios, the Diverse Income Trust which is worth roughly £250 million, he’s taken out a ‘put option’.  His aim is to ensure his gains are shielded against a stockmarket collapse, after a continuous rally in recent month on the UK’s premier index.

He bought the put option with an index strike level of 5,800.  That was roughly 17% below the position of the FTSE 100 at the time, which stood at around 6,800.  His intention was to protect around a third of the assets of the fund.  It cost a cool £4 million.

As Williams explained, ‘The advantage of holding a put within the context of a broad portfolio is that should unexpected events adversely impact on the level of equity markets generally, then the put tends to partially offset the market fall. This offers some protection in value to the overall net asset value of the company, whilst enabling the manager to remain invested and generate revenues.’

Others Hold A Similar View

Henderson’s EuroTrust manager, Tim Stevenson, is on record saying he’s cautious about markets in the short term.  He believes a fall of up to 10% may be sparked by what might actually be some pretty irrelevant news. 

Further nervousness was revealed by Neil Woodford of Invesco Perpetual.  He warned a month or so ago that the substantial rise in the market during 2013 was unsustainable.

But It’s Not A Unanimous Opinion

There are plenty of investors who simply don’t believe this.  Many are of the opinion the market will rally as we head towards Christmas, causing the year to end strongly.  Whether this view based on fundamental evidence, or just plain hope, is a matter of conjecture.

As with everything to do with the stockmarket, such diametrically opposed opinions just go to show that whilst some will be right, others won’t be.  As long as you don’t end up losing your gains, then it doesn’t really matter. 

Should You Follow The Experts?

If you’re uncertain about continual stockmarket growth, then perhaps you should consider protecting your gains.  There’s a variety of ways to achieve this, including deposit accounts, Government Bonds and high yielding loan notes and corporate bonds, some of which are featured in the SIPPclub Invest area.

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