BNP Paribas Wealth Management is advising clients to invest in a fund-linked solution with a focus on downside protection on the basis that deposit rates may no longer be sufficient to offset cash drags.

According to the bank’s Asia head of investment services, Arnaud Tellier, regional clients may be hunting for yield with increasing intensity, but portfolio cash allocations on the whole remain high.

“In this complex environment, a differentiating solution designed to generate income while preserving wealth is essential to meet investor expectations,” Tellier says, emphasising downside protection.

The bank is advising clients to invest into a bespoke structured product solution with a payout linked to a basket of funds that offers access to two multi-asset total return strategies and two unconstrained bond strategies.

Regarding downside protection, the bank has structured the basket to include a volatility control mechanism and principal protection.

Investors also have the option to add a feature to mitigate product sensitivity to interest rate variations.

“2016 has been a challenging year for investors,” Tellier says, highlighting the sharp post-Brexit recovery, persistent low volatility and subdued growth prospects.

“Ongoing discussions about possible economic stimulus programmes from the US Federal Reserve before year-end would produce conditions conducive for investment opportunity creation. However, additional uncertainties around the outcome of the US elections, the pace of the US rate hike and geopolitical risks would likely impact the markets.”

Private banks in Asia continue to grapple with a lull in transactional activity, particularly due to diminished equity appetite.

Structured product flows have decreased by up to 40% in structured product flows, according to a recent poll conducted by Asian Private Banker.

Regional demand continues to revolve around yield-oriented solutions with relatively higher predictability and downside protection, such as fixed maturity bond funds.