Paul Thind of RBS explains the index strategies and structures which enable investors to reduce risks in challenging market conditions, and looks at considerations for investors.

Date: Dec 2011

Tags: Indexes, Risk, Suitability

• In volatile market conditions, when certain indices are not always performing, investors should look at strategies to optimise the performance of indices
• De-risking can be done by exiting the market when volatility is rising to reduce risk, or by moving completely into cash or bonds
• Investors could buy a structured note on a Delta 1 product, or they could buy a certificate, and if there is sufficient size, it can be in fund format
• Investors should generally look at these products if they are already invested in the underlying market

In volatile market conditions, when certain indices are not always performing, Paul Thind said in an interview that he helps to develop strategies to optimise the performance of indices.

This can be done in several ways, he explained. One way is to look at the equity constituents, and try to optimise returns in some ways. The other way is by looking at the market structure and trying to find some way to de-risk under abnormal market conditions.

De-risking can be done, for example, by exiting the market when volatility is rising to reduce risk, or by moving completely into cash or bonds, for instance, said Thind.

He explained that because his strategy is rules-based and transparent, investors can make an assessment about whether to either substitute their own investments, or look for partial substitution, to give it a certain weighting.

They can do that via Delta 1 products, which means having exposure to the market, or getting out, said Thind. Or they can exercise other options, he said, such as having a capital protected version or par index.

Product structure

According to Thind, investors could buy a structured note on a Delta 1 product, or they could buy a certificate, and if there is sufficient size, it can be in fund format. He said he can deliver products in different wrappers according to the investors demand.
 
Suitability for clients

Thind said these structures are appropriate for any investor. For retail investors in particular, the strategies address the market complexity and try to find solutions.

Risks of buying these products

Investors should generally look at these products if they are already invested in the underlying market, said Thind.

For example, in the Korean equity market, he is designing a product where the underlying would be the KOSPI. So if investors are comfortable with this, they look at the product in relation to what they are already used to, he explained.