1. ETFs
Exchange traded funds (ETFs) was a catchphrase regularly bandied about in 2009 as investors yearned for greater transparency in an uncertain market. ETFs are open-ended index funds that are listed and traded on stock exchanges. They were considered attractive as investors could see their holdings and their performance on a daily basis, as opposed to managed funds. Wealth Insights’ managing director Vanessa McMahon said indexed funds have also seen an increase in popularity compared to managed funds due to lower costs.
“Planners have looked at where they can save costs, and there is a real attraction to an indexed product that has a management exchange ratio [MER] of, say, 30 or 40 basis points when it is compared with an actively managed product that has an MER of as much as 110 basis points,” she told Money Management in an interview in October.
2. Capital guaranteed products
Worries around market volatility in 2009 also saw renewed interest in capital guaranteed or capital protected products, which protect invested income from a downturn. They are of course usually marketed to the more risk averse or investors in or nearing retirement. However, following the collapse of large institutions and struggling banks across the world, some investors still remained cautious of where that guarantee stemmed from. Nonetheless, 2009 saw the launch of a number of capital protected products. AXA North’s marketing increased over the last year and ING recently released its MoneyForLife offering. While ratings house Adviser Edge recently endorsed MoneyForLife, its head of structured products, Geoff Watkins, warned that products such as MoneyForLife and AXA North only provide a clear benefit in a limited range of circumstances.
3. Cash
Following the Federal Government Deposit Guarantee and as the share market tumbled, investors scrambled to move their investments out of equities and into cash. While that safeguarded capital at the time, it left risk sensitive investors ironically at risk of missing out on the upturn. Head of investment strategy at UBS, George Boubouras, told Money Management in August that many investors were still stranded in cash while global equity rebounded. He said cash weightings for super funds, institutional funds and private clients were still at record levels.
4. Annuities
Plummeting superannuation balances and concerns around longevity risk have highlighted the benefits of annuities, which have traditionally been unpopular in Australia due to inflexibility in accessing capital and lack of exposure to investment markets. Challenger Financial Services is the traditional leader in the Australian market for annuities, and submitted to the Henry Tax Review that a proportion of retirement savings entering the benefits phase go towards an immediate or deferred lifetime annuity. While annuities may never be popular unless mandated by law, the lifetime income value proposition led to an increase in retirement product innovation over the year. Most recently, ING’s MoneyForLife afforded the benefits of a guaranteed lifetime income, but unlike traditional annuities it offers exposure to markets and more flexible access to capital.
5. Risk insurance
Increased unemployment led to a surge in the uptake of risk insurance. According to Tower Australia, the insurance industry grew by 14 per cent in 2008 and had gained more than $7 billion in annual premiums by May 2009. That market is expected to triple in size by 2017. In September, Zurich was named the 2009 Risk Company of the Year in the Money Management/Dexx&r Adviser Choice Risk Awards 2009, which the head of Zurich Life, Colin Morgan, attributed to a revamp of the group’s life insurance products earlier in the year to provide better affordability and flexibility.