Expert view: A simple way around market volatility

Investors hate losing money. Although high returns are great, the extreme volatility we have witnessed of late, in part as a result of de-leveraging in the market, is a real turn-off.

So when you find an investment that is capable of generating between 8 and 11 per cent a year, with low volatility, it warrants some special attention.

What the Traded Life Settlement market lacks in glamour it more than makes up for in simplicity and substance. The US Whole of Life insurance market is worth $450bn (£223bn). This is like our term assurance, but has no investment element and an assured guaranteed sum attached, which is paid on maturity - or 'death', as we sometimes call it. Many elderly policyholders will see no benefit from their years of contributions, but can now capitalise on this feature and pre-sell their guaranteed death benefits at a discount. This discount represents the final return to the investor.

If you hold a single policy, the returns are highly unpredictable. But by investing in a fund you can get access to a wide spread of policies so that it should be possible to make pretty accurate life expectancy assumptions by using tables that are similar to those used by the life offices themselves.

The fund will also run a valuation model that gradually unwinds the increasing value of these policies so investors should experience a gentle and steady increase in the value of their holdings.

And that's it. No dark arts or smoke-and-mirrors strategies. You are simply buying an asset with a deeply embedded value at a discount. The original policy holders are typically wealthy Americans disposing of the asset for genuine financial planning reasons, so the investment is a good deal and more ethical than most.

As with any investment, there are risks. In this case, these are often associated with the structure and processes underlying the investment. Nevertheless, the benefits can be compelling as long as trustees do their due diligence.

Independent medical underwriters, credible auditors and custodians, transparent charges, a wide spread of policies and a sterling hedge are all good signs. The US market is fuelled by institutional investors, so looking at the line-up of fellow investors can make you feel comfortable about the credentials of any fund.

Given the widespread concerns about the immediate outlook for traditional property, stock and bond portfolios, the steady returns from this uncorrelated asset class can make them a valuable component of multi-asset portfolios.

- Markas Gilmartin is adviser director at financial services firm AWD Chase de Vere 

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