Traditional long-only houses and hedge funds in the UK expect to increase their use of derivatives as they scramble to build capital protection or guarantees into products to lure anxious investors back into the market. Some 79% of traditional and alternative houses expect to use more derivatives in the next 12-18 months according to a survey by Protiviti, a consultancy, amid growing need demand for more downside protection. A number of houses have rolled out lower risk offerings, with some success. Data last week from the UK Investment Management Association showed that the tiny Guaranteed Protected Funds sector, accounting for just 0.4% of the UK industry, was the most popular sector in terms of net flows into individual savings accounts in October, attracting £18.2m. Separately, Arete Consulting said sales of structured products rose 15% yoy in the 2008 first-half as investors switched out of traditional equity funds to guaranteed and protected products.
