Rebuilding investors’ confidence

Increasing uncertainty in the global economy is making investors nervous about the potential for substantial losses. DIF Broker is working to solve this issue

Investors have been left sitting on their funds as 2016's political shocks trigger market uncertainty  

To the average investor, the global market has never seemed more intimidating. In between surprise political events – such as the UK’s vote to leave the EU and Donald Trump’s shock election in the US – and drastic changes in China’s economy, the future for the world’s financial sector is anything but certain.

Even though central banks are doing everything they can to encourage investment and spending, taking the plunge into this complicated investment landscape is far easier said than done. This is especially true now traditional methods to ensure the integrity of a portfolio are no longer as effective as they once were. While opportunities still exist for the informed investor, knowing where to turn is difficult. Paulo Pinto, Chief Operating Officer at DIF Broker, told World Finance: “Only a fool would bet against the bull market promoted by the central banks.”

DIF Broker, founded in 1999, helps European investors – particularly in Spain and Portugal –protect their savings and prepare for the future with their investments. It has recently begun a significant expansion of its operations, acquiring Uruguayan firm Saxo Capital Markets Agencia de Valores in 2016, beginning a push into a new region. With this acquisition, the firm has quickly become one of South America’s key players.

Pinto said DIF Broker is dedicated to helping people think differently about how they invest their money: “We know investors are concerned about where to place their trust. Where once it was possible to inspire confidence with the scale of an institution alone, today trust must also be built on a concrete record of delivering on your promises.”

Certain uncertainties
The current climate for investments is one that is full of both more opportunities and more unknowns than ever before. These uncertainties have increased the potential for a sudden drop in investor confidence. Stock market crashes seem inevitable, with events similar to Black Monday 1987, the dot-com crash and the flash crash of 2010 at risk of playing out.

Pinto explained that the old adage to never fight the world’s central banks is out-dated. “Low and negative interest rates have inflated stock and bond prices, but central banks are running out of ideas. They are simply patching up holes in the financial markets with wads of cash, which they can create at no cost. Not even the central banks can believe this will last forever.”

Fortunately, with a trusted broker offering products that mitigate uncertainty surrounding future returns, individual investors can make decisions with more confidence and ensure a firm financial footing. The development and implementation of intelligent financial products can therefore help investors manage the risk of widespread losses across portfolios.

The current climate for investments is one full of both more opportunities and more unknowns than ever before

In order to protect its customers from a potential catastrophe, DIF Broker has developed a new product called DIF Options. DIF Options allows investors to build a collection of personalised ‘protected investments’. Through DIF Broker’s online platform, investors choose any major exchange-traded fund or major stock, and select a level of protection against downside losses. Investors then choose to either pay for the protection with an upfront premium, much like insurance, or agree to give up some of their future upside. The system places powerful investment protection tools in the hands of investors for a mere fraction of the price they would traditionally cost.

To any investor, whether they are working with large or small portfolios, the proposition should be a comforting one. With this level of support and growing uncertainty in the broader financial sector, investors can feel more confident in their decisions. The risk of a widespread stock market crash no longer carries the same threat.

Protecting valuable assets
DIF Broker decided to develop the product when stocks were at records highs and investor sentiment was at its most bullish after sensing an increasingly risky financial environment. With safe gains now long in the past, the agent sought to innovate, delivering option-based strategies to more people.

“By using exchange traded options, it is possible to create investments with no early withdrawal penalties or credit risk”, explained Pinto. “These products have very low fees when compared with traditional structured products, and were previously only available to high net worth individuals with high minimum investments. Moreover, both yield and protected investment product lines offer customised risk exposure, which can be tailored to an individual investor’s risk tolerance.”

The DIF Options platform was developed in conjunction with a trusted name in finance, CBOE Vest Technologies, a company that specialises in bringing wider access to investments with targeted protection, enhanced returns, with the level of predictability that is unattainable with most other investment services available today.

“The platform allows clients to structure protective strategies using a portfolio of exchange-traded options to match the investor’s personalised investment objectives and desired protection as closely as possible”, explained Pinto. “To boil this product down to its essentials, it’s basically a user-friendly interface to work with options-based protected investments. The engineers and designers at CBOE Vest Technologies have done everything they can on their end to reduce the complexity of these products, which can sometimes prove intimidating, both for financial advisors and their clients.”

In the case of past stock market crashes, investors may have been able to avoid suffering massive losses if they had a tool product like DIF Options at their disposal. Pinto said the product was specifically designed to provide an easy way to protect portfolios from selloffs. “It’s also ideal for long-term value investors who do not believe in market timing. Each offer is valid for the options expiration calendar, either the next 12 or 24 months. It’s making use of an instrument – options – that exists precisely for this purpose, to provide a measure of certainty in uncertain markets.”

Pinto also said DIF Options would benefit investors of every level. “With the DIF Options platform, investors can automatically hedge, or insure, stocks or exchange-traded fund investments, without having to learn about the sophisticated financial instruments used by institutional and high net worth investors.”

Out with the old
Traditionally, investors have sought to protect their portfolios from a widespread crash by diversifying their investments. This method of mitigating risk by spreading it out across a range of investments in the hope of avoiding a hit across an entire portfolio is no longer as effective as it once was. Investments previously considered sure bets no longer carry the same amount of confidence. According to Pinto, while diversification is theoretically a sound concept, it can fail when needed the most – for example, when commodities, equities and corporate bonds all fell at the same time in September 2008.

“In contrast to protection through diversification, protected investments through options have a contractual level of protection”, said Pinto. “Sophisticated investors who understand options can build such investments themselves. Wealthy investors with millions to invest can access protected investments through their private banks for a high fee. However, for most everyday investors, such strategies are either too complicated or beyond their reach.”

Making sure the interface investors use in order to make their decisions as simple as possible has also been a priority for DIF Broker. Pinto explained the company has decided to move away from being a heavy and complex repository of information. “We wanted a website that responds to the visitor’s choices, and their interests. We wanted to be clear with our business objectives and we want the visitor to be clear with his or her expectations. Clients know us, but we wanted to prioritise visitors, so they can quickly understand if we are the right choice for them.”

This increased focus on simplification has led to DIF Broker’s current design to be used not just on its European websites, but on its South American platforms as well.

Between the incalculable amounts of data now available and the throngs of uncertainty that are currently enveloping the global economy, mustering up the courage to take the chance on an investment is difficult. However, despite these uncertainties, there are ample opportunities for people looking to invest. Yet with the opportunity to mitigate the risks of investment, investors can make decisions with far more confidence.

Looking to the future, DIF Broker has high aspirations for the next stage of its business development. Pinto said that, while having a strong online platform is important now, a more personal and individual service is the next step for the company. “Going forward we hope we will move away as much as possible from the virtual domain of the internet and much more into personal contacts. We are figuring out how to create a 21st-century user experience with the 20th-century human experience. This is the reason we make our intentions very clear: we aspire to be our clients’ most valued financial advisors.”