Paul Brownsey, of Pathfinder Asset Management, said his firm had been buying down-side protection for its equities portfolios.

“Volatility is as low as it has been – it has only been this low twice since the 1990s so in that sense option protection is as cheap now as it has ever been.”

He said Pathfinder did not expect to see a large sell-off or market meltdown but it recognised there were risks, and potentially more than the market had priced in.

He said US valuations had crept up on the back of “good news” such as Donald Trump’s planned tax changes and regulatory relief. But the market had not paid attention to the potential risks of the Trump administration, including trade upheaval, protectionism and geopolitical concerns.

“We’re not expecting a big sell-off but it’s prudent to buy long-date protection.”

The World Equity Fund has 60% to 70% downside protection so every 10% fall in the market will only result in exposure of 3% to 4%.

The Global Water Fund and Global Property Fund are also protected up to 30% to 40%.

Other managers might try to achieve that protection by shifting into cash, he said. But protection options allowed investors to retain exposure to potential upside.

"In the worst case if it goes up 10% and we’ve spent 2% on options, we have an 8% return on the upside. And if it falls we have much better downside protection. That’s a good bet to be taking.”

He said those who relied on moving to cash were effectively promising to be able to pick the turning point of the market. “History shows that trying to pick the turning point is a pretty tough game to get right.”

But Clayton Coplestone, of Heathcote Investment Partners, was unconvinced.

He said there was little evidence to demonstrate that portfolio protection strategies had managed to add any consistent or meaningful value.

"From our analysis, the best risk mitigation is to pay a reasonable price (less if you can manage it) for a portfolio of stocks that deliver consistent and predictable returns irrespective of the market gyrations. In the absence of finding these stocks, then the most prudent decision is to leave the money in the bank until such a time as they present themselves."

Andrew Bascand, of Harbour Asset Management, said the strategy was effective globally but hard to implement in New Zealand.