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Asset Management / Wealth Management
Diversification, principal protection in multi-asset strategies
The 'principal-protected note on BNP Paribas Multi-Asset Inflation Index' follows a core satellite strategy
Phelps Wong 30 Aug 2023

Diversification serves as an anchor in the face of market uncertainties. In this respect, a multi-asset strategy significantly contributes to diversifying investments across de-correlated assets. This was a trend spotted by The Asset team while analyzing structured investment solutions that stood out in the market as part of The Asset Triple A Private Capital Awards 2023.

BNP Paribas Wealth Management, which manufactures structured products with a multi-asset strategy in a principal-protected format, showcases investment solutions that are finely tuned to align with the dynamics of the current market situation characterized by high inflation and elevated interest rates.

The “principal-protected note on BNP Paribas Multi-Asset Inflation Index” follows a core satellite strategy, offering diversified exposure across multiple asset classes, including equities, fixed income, money market instruments, and commodities. The multi-asset index serves as the core foundation of the portfolio, while the satellite component incorporates exposure to money markets and commodities. The core holdings provide broad exposure to various asset classes providing consistent returns over time. By emphasizing stability, the core portfolio helps to manage risk and maintain a disciplined investment approach, particularly during market fluctuations. The satellite positions allow for potential benefits from rate hikes and inflation trends. A certain degree of inflation hedge is provided by keeping pace with the rate of inflation to mitigate the loss of purchasing power.

Systematic trend-following strategy is embedded in the index, potentially generating higher risk-adjusted returns in an inflationary environment. In a nutshell, trend-following strategies attempt to identify and capitalize on the direction and strength of the trends using technical analysis techniques, such as moving averages, trendlines, and price momentum indicators. This strategy enables investors to ride the momentum and harvest gains via participation in price movements, taking long positions in assets that are gaining momentum or short positions in assets that are losing momentum once the trend is identified. Trend-following strategies are most effective and yield profitable results when markets exhibit clear and prolonged upward or downward movements.

This investment solution is wrapped in a principle-protected format to limit the downside risk, while the upside potential of the underlying index is geared up via a 180% participation rate. By employing this gearing mechanism, the positive performance of the underlying asset is amplified 1.8 times. Additionally, the principal-protected format serves as an overlay that provides security, enhancing the level of protection for investors' capital. This protection offers peace of mind to investors, especially in uncertain environments where market volatility and downside risks may be heightened. This solution offers a balanced strategy that safeguards against potential losses while simultaneously offering the opportunity for returns in turbulent times.

In an environment where uncertainty prevails, investment solutions that embrace diversification and principal protection can offer a favorable path to navigate market volatility and help investors achieve their financial goals with more confidence.

The offering, “principal-protected note on BNP Paribas Multi-Asset Inflation Index”, won the Best Structured Investment and Financing Solutions in Multi-Asset at The Asset Triple A Private Capital Awards 2023.

This article is the latest edition of our Nuts & Bolts series that looks into the nitty-gritty of some of the sophisticated investment products and capital markets deals in Asia. For the previous article in this series, please click here

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