Barclays Capital plans to start offering retail investors inflation protected exposure to funds structured with over-the-counter derivatives. Paul Coleman, director in investor solutions in London, said the products are being developed to take advantage of low-inflation rates and investor demand for less equity exposure.
The investment will either be referenced to a mutual fund, basket of funds or a fund of hedge funds. It will also be capital protected, but probably 80% rather than 100%. The cash from the reduced protection will be used to buy an inflation call option. It will gain exposure to the funds via either an option or Constant Proportional Portfolio Insurance (CPPI) structure.
The cost of structuring the inflation hedge has kept most other players out of the market. Brett Bastin, head of product development at Invesco, said the inflation hedge is fairly expensive at around 2%, which leaves less cash to invest in the funds.
