Citi serves up a best-of-both-worlds recipe for an uncertain investment universe

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This is a sponsored article from Citi.

Mederic Gehl
Head of Retail Solution Structuring, APAC
Citi

At a time of unpredictable returns, Citi offers investors a new solution that has the technical advantages of structured products, while utilising the model portfolio capabilities of the world’s largest asset manager BlackRock.

Finding a recipe for investment success has never been more challenging. In a new age of low interest rates, declining returns, US-China trade conflict, and an increasingly volatile global geopolitical situation, coupled with unpredictable situations, such as the new coronavirus outbreak, it requires vision, ability to break new ground and reactivity to adapt to constantly changing market environments.

Citi has risen to that challenge by shaking up the traditional investment ingredients to offer a unique solution that combines the advantages of structured products with dynamic multi-asset allocation. This is done through an index, designed and created by Citi, and utilising BlackRock’s model portfolio allocation advisory service.

The Multi-Asset Active Allocation Index by Citi (known as MA3), allocated by BlackRock, provides investors with a solution that is adapted to today’s financial environment, according to Citi’s head of Retail Solution Structuring APAC Mederic Gehl.

The index, rebalanced dynamically according to input from BlackRock, benefits on top from optimised design with cost efficient unfunded instruments, daily control of the volatility and leveraging Citi’s execution capabilities.

Navigating a conservative landscape
The inspiration for the novel MA3 concept was born from a fast-changing global financial situation which has seen investors become increasingly conservative, with a leaning towards the greater security of multi-asset portfolios and an inclination to hold tight to existing holdings.

“Everyone is conscious that the bull market is not going to continue and somehow we are reaching a late-cycle environment,” Mederic explained. “At the same time, there are increasing geopolitical tensions which are making clients more careful about the investments they will make this year.”

“Interest rates remain extremely low which means they cannot stay in cash so money needs to be put at work in other investments. One of the key requirements is for principal protection.”

Those same instincts have driven demand for momentum quantitative strategies in recent years, but investors are beginning to cool on those strategies which have failed to keep pace with global financial developments.

Investors pursuing the momentum approach have more recently found themselves mired in long-term strategies that lack flexibility and responsiveness, said Jennifer Wong, Citi’s Head of Private Bank Distribution for the Asia Pacific region.

MA3’s combination of systematic portfolio optimisation and discretionary views addresses that shortcoming in a new and disruptive way. “The distinctive asset allocation methodology offered by BlackRock embeds a key discretionary aspect from the portfolio manager, who has the flexibility to rebalance the portfolio four to twelve times a year, thereby being responsive to unexpected domestic and geopolitical events. This, in combination with Citi’s structuring expertise, makes it a cutting-edge value proposition for clients,” Mederic said.

A solution built on solid foundations
MA3 has been engineered using BlackRock’s Model Portfolio allocation advisory service. The index refers to a globally diversified portfolio with granular building blocks and a conservative risk budget of 3-6%. Investors can get exposure to the index via a Citi note, benefiting from 100% capital back at maturity (subject to creditworthiness of the note issuer) and receiving an annual income.

Robert Ronneberger, Asia Lead Strategist for Model Portfolios at BlackRock, explained that the firm was managing close to US$60 billion in such model portfolios at the end of 2019, which benefit from a distinctive allocation methodology, by combining systematic optimisation with discretionary views.

This allocation methodology “combines quantitative management (adaptive set of signals ranging from traditional valuation-based signals to innovative sentiment-based signals) with active management. Model Portfolios are therefore adaptive to a changing environment,” Robert explained.

The index and the arrangement aim to provide a relatively conservative yet progressive and highly innovative way for clients to navigate a complex and evolving investment landscape and provide the multi-asset diversification and principle protection that they seek.

“It is a strategy for a new investment environment that is creating appetising prospects for clients”, Jennifer said.

Promising market trends
Those prospects have been reflected by a strong momentum for flow-structured products at the start of 2020, according to Jennifer who said Citi had seen volume and revenue double compared with the same period last year.

Five key properties were being sought by customers, she added: Principle protection (full of partial) with clients seeking limited downside; income-paying/yield-searching in a persistently low-rate environment where millions of FMPs are still being sold; multi-asset (asset allocation/diversification needed with late cycle for equities market); third-party index strategic (custom index or systematic); and outperformance structure (either sector play or dispersion among single stocks).

Disclaimers: The MA3 index is provided by its administrator Citigroup Global Markets Limited, and allocated by BlackRock Asset Management North Asia Limited. The index is purely notional, and the combination of the index and its wrapper does not amount to a fund; there is no actual portfolio of assets or management of a portfolio of assets. This article does not constitute advice of any type (including investment advice), or an investment recommendation, or a solicitation or offer to sell or to purchase any securities or other financial product. Any decision to make an investment should only be taken with reference to the formal terms and conditions, and offering materials, of the relevant financial product.

This is a sponsored article from Citi.

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