In investment portfolios, combining risky and risk-free assets is common to balance safety and returns. However, market uncertainties from events like wars, pandemics, and economic recessions pose challenges. To navigate such volatile markets, incorporating protective assets is crucial. At Franklin Meidici Family Office, we view insurance and protective investment structures as the foundation and lightning rod of an asset portfolio.
Franklin Meidici Family Office is honored to inviteMr. Charles Firth, Managing Director of Credit Suisse (Hong Kong), to analyze structured investments. Mr. Firth leads Credit Suisse's structured products sales team in Southeast Asia and has held senior positions at UBS and Barclays.
Q: Why and how can structured products protect investors in the current market conditions?
A: Given the current market uncertainties, investors are concerned about the future performance of various assets, such as volatile stocks and high-yield Asian bonds. In this environment, investors prefer stable investment opportunities, including certain principal-protected structured products.
Q: How do investment banks design structured products?
A: Taking partially principal-protected notes as an example, these are composed of zero-coupon bonds and call options.
Assuming a product annual return of 3%, with an initial price of 100%, the zero-coupon bond price would be 103% after one year. If the product offers 98% principal protection, the remaining 5% is allocated to purchase call options, which can be customized based on client needs, linking to different underlying assets.
Q: What assets can serve as underlying assets for structured products?
A: Under partial principal protection, to control option costs, it's preferable to choose assets with lower volatility, typically avoiding high-volatility assets like stocks.
Q: Can you introduce a case of a (partial) principal-protected product?
A: A popular example is the Multi-Asset Core Custom Index developed in collaboration with Invesco. Invesco manages over $100 billion in assets, with approximately $15 billion allocated to this index strategy. This index invests in stocks and bonds, dynamically adjusting positions based on various signals to control risk. Due to its low volatility, this product offers partial principal protection while providing investors with a high participation rate.
