LONDON Many of the world's wealthiest investors remain traumatized by the losses they sustained during the financial crisis and are clutching on to safe, low-yielding assets rather than taking any risks.
Wealth managers say that even after a 75 percent rise in world stocks since March, a lot of clients' money has yet to move. Investors have, in the words of one strategist, become "structurally risk averse."
That is prompting investment managers to seek creative ways to unleash funds held in safe cash positions, and may be the key to sustaining this year's rally in stocks and riskier assets.
Managers are enticing clients with guarantees of investment capital or by offering other rewards to make losses less likely.
It is a phenomenon similar to that seen in 2002-03 when investors were reeling from the bursting of the internet stocks bubble. So some may even have been twice burned.
How much is tied up is difficult to ascertain. Fund tracker EPFR Global reckons that some 94 percent of the net flows to U.S. money market funds it tracked in 2008 has already exited.
But going further back, it says U.S. money funds that report weekly took in a net $191 billion in 2007 as a whole. That suggests that the cash unwinding of the past two years is at most only two thirds through.
"There is a lot of juice," said Michael Dicks, head of research and investment strategy at Barclays Wealth. "Even if they went half way from where they are now to where they were pre-crisis, that would produce a significant amount of momentum."
Today's problem for investment managers -- who, of course, get their fees from clients making money and moving around assets -- is that the stock market crash was so harsh that many investors are almost terminally gun-shy.
World equities did, after all, fall some 60 percent from peak to trough.
"Clients are still nervous -- less so than they were a year ago but (they) are only getting back into markets very selectively," said Phil Cutts, director at RBC Wealth management.
To combat this and the ultra-low rates paid on cash accounts, investors are being offered products that provide some form of protection or at least a sweetener to get them to dip back into risk.
Cutts' RBC, for example, is touting a capital-guaranteed BRICs currency fund. Principal is returned in full if the Brazil, Russia, India and China basket -- divided equally between real, ruble, rupee and yuan -- underperforms the dollar.
But if it rises, investors get the principal plus the return on the basket. RBC then adds an additional 20 percent of the return.
RBC also offers what it calls a "best entry point" note, designed to assuage fears of a coming market correction. It is not capital protected, but lets investors buy equities now at the lowest closing price over the coming six months.
Barclays Wealth, meanwhile, is also guaranteeing at least some principal in an emerging markets foreign exchange fund, this time based on the Indonesian, Brazilian, Indian, South African and Polish currencies.
The product offers 95 percent capital protection and has what is known as a participation rate of 220 percent, meaning that if the basket rises by, say, 10 percent at the end of 3 years, the client receives 95 percent plus 22 percent, or 117 percent of the initial capital invested.
One of the ironies of using these kinds of products to wean clients from low-yielding cash, however, is that the yields themselves make it difficult to create such funds, which are generally guaranteed by the use of options.
"Typically what you would do is sell an option on (an) index so that you could buy it back again at 100 percent," said Guy McGlashan, head of private wealth management services at Kleinwort Benson.
"But when volatility has dropped off and interest rates are so low those options are not giving much money back."
McGlashan said that many of his firm's clients were also tentative about moving back out of cash and that many of those who had, had moved into what are now expensive government bonds.
But they have been attracted by managed portfolios that have stop losses or trailing stops attached.
The former protects funds from an investment losing too much if it falls in price. The latter, meanwhile, also protects gains that are made by having the stop rise when the underlying asset does.
Whether all this will be sufficient to tease the tentative back into riskier assets remains to be seen. But you can bet that a lot of those investors wished they had had trailing stops on their portfolios back in 2007.