"Weather futures and options products frequently stand out as one of the most noncorrelated asset classes in the entire spectrum of capital market investments," adds Mathews. "They have a mind of their own, and can't be swayed by fear, greed, legislation or central bank intervention."
These products are not without risk, of course. By some accounts, OTC products offer greater flexibility in specific weather triggers and payment plans, but carry greater risk for end users. Windle, however, thinks the risk is overblown. "The OTC products aren't as risky, per se, and they may not in some cases have as high a credit rating as the exchange, but they still have a quite high credit support," he says.
The other risk the investor has to be concerned about, according to futures broker Mathews, is the risk of the transaction itself apart from the counterparty credit risk.
Bruce W. Fraser, a financial writer in New York, is a frequent contributor to Financial Advisor.