Steve Lamarque introduces Managed Portfolio Services enhanced with individualised portfolio insurance.
With analysts predicting another gloomy year of the markets moving sideways, the outlook for 2023 leaves much to be desired. Investors can no longer afford to skip high inflation and interest rate protection strategies if they are to prepare their finances for the expected increase in volatility.
In addition, many of our clients are concerned about how fluctuations will impact their investment portfolios, and we anticipate receiving more insurance enquiries if the market continues to trend down. Portfolio insurance has many meanings, but at the highest level, it is a risk-mitigating strategy that primarily protects equity-centric portfolios in the event of an economic downturn.
The current protection play
One of the more common approaches among more risk-averse equity investors would be constant proportion portfolio insurance (CPPI). CPPIs have been historically prevalent in attaining seemingly incompatible objectives. Essentially, they are a low-cost trading strategy that protects the principal while maintaining equity market upside potential.
Typically, a CPPI has a five-year investment horizon that aims to provide a minimum return of 90% of the principal at maturity. It also maintains initial participation in the equity market at the same level as if the investor had invested directly in stocks (i.e., 100% participation). As time passes and market conditions change, the exposure to equities adjusts dynamically to protect the targeted minimum 90% return of principal at maturity. In practice, if the equity market falls from its initial level, the strategy reduces (and potentially eliminates) its equity exposure – a path-dependent approach.
CPPI dynamically reduces losses from risk-off events by reducing equity exposure as markets fall, which occurs quickly. Rapid de-risking is beneficial in a sustained sell-off because it reduces losses as the market moves lower. There is, however, a potential drawback. If the equity markets rebound, the CPPI structure will not participate fully due to this de-risking (an example of the path-dependent nature of CPPI).
Making ETF investments smarter, when markets move in either direction, inspired the team at Hilbert IS to think about lower-risk products differently. Where we ended up was creating a product that combined Managed Portfolio Services with CPPI integrations.
As we know, CPPIs are commonly used to insure funds, but it’s also possible to run them at the individual client account level within a Managed Portfolio Service. Look out for more details of our new product that does just that in the coming months.
Why it’s a product type worth considering
The component parts aren’t unique in themselves but when they are delivered by a skilled team, who have an impressive record of delivering growth and reliable product structures their potential is quite exciting.
Interested in learning more?
The Hilbert Investment Solutions team specialise in structured investments for retail clients and institutions, this experience enables us to develop this innovative ETF product – which is ideal for recession-proof investing.
For more information regarding Hilbert Protect 90, our structured products, or to enquire about other products and services, call +44 203808 7138 or email contact@hilbert-is.com.
Steve Lamarque – CEO at Hilbert Investment Solutions
