Diversified Structured Products Fund
ContactWhat does the strategy invest in?
Structured products whose payouts depend on the performance of equity markets in developed countries
Who is it for?
An investor tolerant towards volatility risk, with a medium investment horizon
Target parameters
Target return: 5-year U.S. Treasury rates plus 3.5-5% p.a. over the investment horizon of 2 years and longer
Risk tolerance: above average
Investment horizon: two years or longer
Withdrawals: monthly
Investment strategy
What makes the strategy special
Investments in structured products, whose underlying assets are equity indices or ETFs on equity markets or individual sectors; these investments allow to earn a return on the par with the one delivered by developed markets high yield bonds over a horizon of 3-5 years, however without taking on the credit risks of these kinds of bonds.
Strategy objective
Earning an absolute return: the target return is achieved over a horizon of 3-5 years, even in a declining or stagnant equity market. For example, by the time of expiry in September 2012, the portfolio, originally formed in 2007, was earning 8% in terms of coupon yield, while the S&P 500, including dividends, delivered 1.9% per annum over the same period.
How we do it
We invest in structured products based on statistical analysis: when the parameters of the instruments are chosen correctly, the coupon yield of the instrument depends mainly on two factors — the current level of the risk-free rate and the expected volatility of the underlying assets over the life of the structured product.
About the fund
Fund facts
Investment terms
Structure advantages
Risks
Risk Management
Description The risk of the instrument moving lower than the defensive barrier, below which the investor loses significant amounts of money.
Risk management method Diversification in terms of maturity times reduces the probability of capital loss for a considerable proportion of instruments in the fund’s portfolio, when the instruments mature during periods of falling markets.
Description The risk of a significant reduction in the value of a structured product on the secondary market during its lifetime.
Risk management method Diversification in terms of initial investment levels reduces the likelihood of a significant decline in market value across all instruments.
Description The risk of a prolonged non-payment of coupons driven by market conditions.
Risk management method Diversification across coupon payment dates and initial investment levels reduces the probability of non-payment of coupons across all portfolio instruments over extended periods of time.
Description The risk of bankruptcy of the issuer of a structured product.
Risk management method Restrictions on the credit rating of the issuers and diversification of the portfolio across issuers reduce the risk of loss in the event of a bankruptcy of an individual issuer. The Fund invests in senior debt of issuers with an investment rating of A or higher.