Scottish Widows And Legal And General Looking To Property Derivatives
While they are both looking at the property derivatives market for different reasons, it is interesting to see that major players such as Scottish Widows and Legal & General are taking a keen interest. A derivative is simply the option, but not the obligation, to buy or sell an asset at a future date in return for a ‘margin’ payment. The right to take up the option is decided by the investor and they can let the option lapse if not commercially viable.
It seems that Scottish Widows is looking at derivatives in order to increase their exposure to the property market, while at the same time retaining a fair amount of liquid cash in their investment funds. The derivatives in which they are dealing in are linked to a property index which tracks the UK property sector as a whole.
On the other hand it seems as though Legal & General are looking to play off expectations of a 7% fall in the market this year against an expectation of a property price fall in the region of 8% - which has been priced into the derivatives market by investors. If Legal & General are right then they stand to make a gain on the options.
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