Principal-protected investments are experiencing a resurgence in demand as investors look to add more risk to their portfolios, product providers have said.
“I think post global financial crisis there has been a flight to safety and traditionally that flight to safety has been to transfer clients’ funds out of growth assets into less risky assets such as cash and fixed interest,” JB Global chief executive Justin Beeton said.
“But over the last six months we have seen a demand for low-risk-natured investments, however, clients still desire some exposure to growth assets.
“Investors don’t want to miss out on markets rallying. Capital-protected investments give investors a mixture of both; they can still have a low-risk-natured investment as the investment is capital protected yet with the upside of growth assets.”
On 7 March, the firm launched new iterations of three separate funds linked to listed United States conglomerate Berkshire Hathaway – which is led by investment guru Warren Buffett -emerging markets and the S&P/ASX 200 Index.
Beeton said JB Global expected to launch more structured products in coming months as investors’ risk appetite increased.
“We plan to launch more structured products as client demand increases. We plan to build on our success from last year, in which we raised $230 million,” he said.
“We will do the same three underlyings for June and probably also products with new underlying exposures. So we may come out with four to five structured investments in June.”
Deutsche Bank global markets director Travis Miller said there was a re-emergence of investors considering leveraged products and also more consideration to alternative and offshore exposures.
“But they are looking to do it in a safe way so they’re seeking a capital-protected structure. I think that’s the first progression as risk appetite re-emerges,” Miller said.
“They also want products that are simpler, transparent and easy to understand and based on more traditional or vanilla indices.”
Deutsche Bank and Wilson HTM recently collaborated to launch a new capital-protected product suitable for self-managed superannuation fund (SMSF) investors.
The product was designed to provide upside to the S&P/ASX 200 Index and came with a choice of two strategies, Wilson HTM manager of distribution Anne Hamieh said.
“One is 100 per cent principal protected, giving the client roughly 130 per cent participation in the upside,” Hamieh said.
“The other tranche is 85 per cent protected, meaning that 15 per cent of the investor’s capital is put at risk, but the benefit of that is the client gets around 200 per cent participation in the upside.
“Given the leveraged exposure the product provides and the capital protection feature, the product is suitable for SMSF investors who want a leverage exposure to the price return of the S&P/ASX 200 without the risk of being margin called.”
Instreet managing director George Lucas said his firm had noticed increased demand for principal-protected products as advisers and clients had become more positive on equity markets.
“We are noticing more demand and principal-protected investments are a way of providing more risk with known downside outcomes, which investors do find attractive,” Lucas said.
Instreet will relaunch its Mast Absolute Returns from Commodities and S&P/ASX 200 funds in the second quarter, he said.
