STRUCTURED FUNDS

OUR SOLUTIONS

Systematic funds: CPPI

The principle is simple:

  • part of the capital is invested in risk-free assets
  • the other part is placed in risky assets (rate-based, equity-based, diversified UCITS, or even hedge funds.)

Systematic rules are applied based on parameters defined when you place your investment and in line with your specific needs. This way we can ensure systematic asset exposure based on the upward and downward movement of the risky and risk-free assets in your portfolio.

Investment parameters made to measure

As a function of the trend in risky assets, the mechanical buy and sell rules are applied based on various pre-defined parameters. Thus, when the risky assets are in a down trend, the exposure to risky assets falls and, inversely, when they are rising the exposure to risky assets increases.
Once the nature of the guarantee has been defined, an initial parameter, known as the "floor" is established, representing the fraction of the net asset value that the asset manager must not lose. It is equal to the discounted value of the level of guaranteed NAV at maturity.
Depending on the nature of the asset class to which exposure is sought, we define a level of Multiplier Coefficient. The Multiplier Coefficient determines the level of the allocation to risky assets and is a multiple of the cushion, the latter being defined as the difference between the Floor and the NAV.
The Multiplier Coefficient is possible since we consider that the maximum level of loss in the risky asset class to which we are exposed is well below 100%.

  • Cushion = NAV - Floor
  • Allocation to risk-bearing assets = multiplying coefficient x Cushion

These two parameters contribute to giving you a picture of the net asset value of a cushion fund at any time since they help to determine the breakdown between risky and risk-free assets.

Transparency of NAV* of cushion fund

Adopt a dynamic approach to managing your risky assets

The dynamic management of risky asset allocation is based on the following formula:

In order to avoid costly round-trip trades, we set a tolerance threshold which determines the maximum percentage fluctuation in the price of the risky asset before the exposure is adjusted, e.g. 5%. The asset allocation will not be changed if the risky asset allocation fluctuates ≤ 5%.

Find out more about the allocation performance of a cushion fund (simulation over 2 months).

Reasons for choosing cushion management

  • Guarantee or protection of your initial capital investment and/or of part of the gains realised thanks to proven techniques
  • Optimised allocation in risky assets thanks to dynamic allocation management and leverage concept
  • An asset management method particularly suited to underlyings with low volatility

Systematic funds: VOLCAP - VOLTARGET

Volatility risk control systematic mechanism

The Vol Target mechanism is aimed at avoiding the impact of significant fluctuations in volatility in ensuring systematic risk control.


This mechanism notably enables investors to reduce their markets exposure when volatility is high, which often coincides with falling markets.


Functioning:

The Vol Target fund comprises both risky and risk-free assets (money-market instruments). The investment in risky assets will be readjusted as a function of the level of its volatility. This level is compared with a pre-determined volatility reference threshold (the target).

  • When volatility is low (below the threshold) the exposure to the risky asset will be increased thanks to a level effect. If the volatility is exactly in line with the threshold, the investor will be 100% exposed to the risky asset.
  • At the other end of the scale, when the volatility exceeds the reference level, the investment in the risky asset is immediately reduced. The fund then gradually replaces the risky asset with the risk-free asset in order to protect the investment from any sharp variations in the underlying. The fund exposure to risky assets will again increase once volatility falls back to the reference level.
  • Fund more than 100% (up to 200%) to the index.
    When the volatility of the SGI Global Environment index is <18%> => the fund is less than 100% exposed to the index.

Example of the dynamic risk control mechanism applied to the Environment Optimizer product

(which invests in the Lyxor Dynamic Environment fund, a product distributed by Adequity).

The Lyxor Dynamic Environment fund
This includes a systematic risk control mechanism based on the historic volatility level represented by the index.
Cap determined in advance: ≥18% (volatility target) / duration: 1 month.

  • When the volatility of the SGI Global Environment index is < 18%
    => exposure to index increased to over 100% (up to 200%) to index.
  • When the volatility of the SGI Global Environment index is = 18%
    => fund is 100% exposed to the index.
  • When the volatility of the SGI Global Environment index is ≤ 18%
    => fund is 100% exposed to less than the index.

However, if volatility exceeds the target level of 18% (if the index is subject to large fluctuations), the fund will reduce its exposure to the SGI Global Environment index. The unallocated portion is invested in money market funds.
This mechanism to stabilise volatility also enables investors to exploit the fact that market downturns often correspond to higher levels of volatility and market upturns to lower levels of volatility.

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