Brexit and Non-Correlation

Brexit and Non CorrelationIt sure was a rough start to 2016 for the stock market. U.S. equity markets recorded their worst start to a year on record. According to the Wall Street Journal, “Stocks and oil prices had dropped together in the first six weeks of 2016, amid worries a downturn in China could export deflationary pressures world-wide. As those concerns eased and the Federal Reserve held back on raising interest rates, risk assets staged just as dramatic a recovery, sending the S&P 500 back into positive territory for the year.

Then, on June 23, the British people voted to leave the European Union. This result was unexpected, with pundits and pollsters predicting the opposite result.

On the Friday following the vote, the global stock market reacted with huge, volatile losses. The uncertainty of the future apparently caused a massive sell off. The WSJ reported that “the surprise result rippled through assets world-wide, while currency markets had their most volatile day in modern history, according to Bank of America Merrill Lynch.

These three trading days between June 24-26 demonstrate that market volatility can be unpredictable. They also illustrate the value of having non-correlated assets in one’s portfolio. While stocks may rise and fall with unexpected information, assets that are not correlated to the whims of traders do not.

Life settlements, or the market for unwanted or unneeded life insurance policies, are one such asset. In a well-diversified portfolio of such policies, performance is generally based on mortality, which does not change with overseas votes, interest rate changes or irrational sell-offs of stocks. As such, these assets may remain steady in uncertain times. Institutional investors have become more interested in life settlements as a result. (It’s important to note that LISA – as noted on its web site and elsewhere -- does not advocate investment by individuals (retail investors), either in individual policies or fractional shares of policies.)

The consumer benefit of institutional investors funding a secondary market for life insurance is that life policy holders have found a market to allow them to monetize unwanted insurance assets. To learn more about this and other options available to consumers who no longer need or can afford their life insurance policies, visit the “Consumer Advisors” section of the LISA website.

About the Author:

Dan Young, CLU, ChFC, CASL, is the President of Magna Life Settlements, Inc., a well-established life settlement provider focused on maintaining transparency, risk management and rigorous process control in the purchase of life settlements. Magna is owned by Vida Capital, a vertically integrated asset management company providing longevity contingent investment solutions to institutional and individual investors. Dan is the Vice President, Asset Management and General Counsel of Vida. 

In addition to his role at Vida, Mr. Young is an adjunct professor of regulatory law at the University of Texas Law School, Board Member and Chair of the Legal Committee of the Institutional Longevity Markets Association (ILMA), Board Member of the Life Insurance Settlements Association (LISA), and a frequent speaker at life settlement industry conferences. Prior to joining Vida Capital, Mr. Young was the President and CEO of New York Life Insurance Company’s Broker-dealer and Registered Investment Advisor. Mr. Young graduated from Stanford University with Honors and Distinction and from the University of Chicago Law School with Honors.