Maritime Super is offering a managed volatility overlay to its growth and balanced options, a process it has described to members as ‘avoid jumping ship’.
It has taken the move to prevent the damaging impact of members switching out of equities into cash during periods of market downturn.
Milliman has been hired to apply futures contracts to manage volatility during periods of extreme market movements, a role that it has also been recently employed for at Plato Investment Management.
The option, which is billed as a Managed Volatility Process for members, goes live on 1 July 2014 and incurs a 0.25 per cent charge.
Peter Robertson, chief executive of Maritime Super, said that members using the option are expected to see lower returns in ‘up’ markets, but better returns in ‘down’ markets.
He explained the necessity of the move as due to “significant investment switching activity during periods of volatility”, predominantly to cash, for its 30,000 members.
Under a section in its newsletter billed as ‘avoid jumping ship’, Maritime Super has explained the option to members as follows.
“Generally, the worst thing you can do during periods of volatility is to switch your investment option to a perceived safer option like cash. Evidence shows that investors who do so generally miss the recovery in the market and are often worse off. What they’re essentially doing is jumping ship at a low price and trying to get back in at a higher price, but by this stage they’ve locked in significant losses.”