Futures: Gamble without losing your shirt

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The Independent Online
ONE OF the safest, low-stress ways for the ordinary person to sample the esoteric world of futures - contracts for the future sale or purchase of a commodity or financial instrument, traded on futures exchanges - can be by investing in futures funds.

Safety is not usually associated with futures and options, which give the owner the right to buy or sell a specific quantity of a commodity or financial instrument. They can indeed be risky. Amateurs and veterans alike can lose their shirts if the markets go against them.

But the UK managed futures industry claims that the beauty of futures and options funds is that they are cheaper than investing in shares but roughly as risky as unit trusts.

Like the fund manager of a unit trust or pension fund, the trader managing a futures fund invests in a carefully selected range of futures contracts, or even just one futures product.

The investor entrusts his money to the fund, sometimes for an agreed minimum time, and ideally sits back and watches it grow with all decisions left to the fund manager.

At least, that has been the situation in the US for 20 years, where there is now about dollars 20bn ( pounds 13.2bn) under management in commodities and financial futures funds. But Britain and Europe are far behind, with only about pounds 2bn under management.

In the UK, strict financial regulations and tax laws meant that British citizens could invest in a futures fund only if it was registered offshore.

This changed in 1991, when regulators permitted the creation of authorised futures and options funds under the unit trust name. But when the Securities and Investments Board reviewed progress a year later, it found companies were not getting into the funds. It is consulting the industry on proposals to make the rules clearer.

Michael St Aldwyn, senior manager of international business development with ED&F Man, the biggest manager of offshore funds in the world, said: 'We are genuinely delighted to see the SIB being so responsive to the demands of the industry.'

But there is still a long way to go on creating a favourable environment. So far, only a few UK companies have created financial futures and options funds. Legal & General, Fidelity and John Govett offer them for either retail customers or institutional investors. But they have attracted only pounds 35m in retail money between them.

As yet, no commodity futures funds have been launched in the UK. With growth in the world's biggest economies beginning to recover and inflation rising, this could be a fertile area providing the regulations are right.

Today John Govett, which has attracted pounds 120m to its non-retail futures funds, unveils a range of futures and options funds for retail customers.

These include a new product that allows investors to profit from a falling market. If you believe the UK stock market is going down, the company can invest your funds in its UK Bear fund, which tracks the FT-SE 100 stock index futures.

Adam Parkin, a director of John Govett, said: 'For the first time in the UK, the public will have bear funds available to them. If the market goes down, their income will go up.'

Investors in the funds must put up a minimum pounds 2,000 but can redeem it at any time without penalty. Govett takes a 41 2 per cent initial commission and an annual fee of 1 per cent, leaving pounds 1,910 to be invested.

For more information about John Govett's new funds, call Ian Taylor on 071-378 7979.