Download structured return for all market conditions

STRUCTURED RETURN FOR ALL
MARKET CONDITIONS
A strategy to deliver no matter how US equity markets behave
Allianz Structured Return joins an established stable of
liquid alternatives absolute returns strategies. The new
market-neutral strategy has a target return of 4 – 6 %,
net of fees, with an expected standard deviation of
3 – 4 % and equity beta of just 0.15. It seeks to deliver
all-weather returns for bond-like levels of risk,
transforming equity exposure into consistent absolute
returns, using options to remove the portfolio’s equity
sensitivity and to generate non-directional premium.
“Structured Return aims to deliver results whatever
is going on in the markets. Like our other liquid
alternative strategies, it is very resilient,” says Allianz
Global Investors managing director Jeff Sheran.
“[Structured Return]
capitalise(s) on making
money, even more so in
volatile conditions”
“Equity markets may be unpredictable, but they are
behaving as they always do. It is the bond market
that is particularly difficult for investors right now.
They want to know how they can generate returns
from their low-risk allocations,” points out Sheran.
The Allianz Structured Return team is led by Greg
Tournant, the chief investment officer of Allianz Global
Investor’s structured product group. His team seeks
returns from three sources: option premiums from
in-the-money calls; the dividend yield on the S&P 500
Index; and put and call directional spreads. The
choice of positions provides diversification and more
consistent returns.
While S&P 500 Index options are used, the strategy
is not equity market orientated. In a range-bound
scenario, the team writes in-the-money call options
to deliberately remove any equity sensitivity. The
important element is the premium and how the team
sets the strike price. “When we write the options, we
deliberately give away the upside. It is the premium we
are going for,” says Sheran.
The team uses a proprietary analysis model to
calibrate strike levels such that options expire without
having to pay out in approximately 85 % of cases.
That still leaves 15 % of cases where the market could
decline below the option strike. When that happens,
the team will typically cover the short position at a
cost, then write a deeper-in-the-money option to
generate a further premium payment. After markets
fall, higher implied volatility means the team can
write new options with higher premiums to offset
the restructuring outlay. The portfolio also contains
directional spreads designed to benefit from largerthan-usual equity market moves. The team also
buys hedging options for the tail risk of more severe
scenarios. While these insurance positions have
a negative expected value, they should limit the
strategy’s losses to a recoverable amount in the event
of a crash.
As Stephen Bond-Nelson – Portfolio Manager of
Allianz Structured Return – points out, the strategy
is designed never to try and call the market bottom,
but rather to “capitalise on making money, even more
so in volatile conditions”. The recent UK referendum
on membership in the European Union was a good
example of how the strategy can deliver in unsettled
conditions. “We had to restructure some of our
positions, but we made money on others, which is the
point of having both types.”
Stephen Bond-Nelson
Portfolio Manager of Allianz Structured
Return, Allianz Global Investors
Jeff Sheran
Product Specialist, Allianz Global Investors
Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Allianz Structured
Return (to be launched by end of August according to the information available at the time of publication) will be a sub-fund of Allianz Global Investors Fund SICAV, an openended investment company with variable share capital organised under the laws of Luxembourg. The value of the shares which belong to the Share Classes of the Sub-Fund that
are denominated in the base currency may be subject to a strongly increased volatility. The volatility of other Share Classes may be different. Past performance is not a reliable
indicator of future results. The products or securities described herein may not be available for sale in all jurisdictions or to certain categories of investors. For a free copy of the
sales prospectus, incorporation documents, daily fund prices, key investor information, latest annual and semi-annual financial reports, contact the management company
Allianz Global Investors GmbH in the fund’s country of domicile, Luxembourg, or the issuer at the address indicated below or www.allianzgi-regulatory.eu. Please read these
documents, which are solely binding, carefully before investing. This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment
company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42 – 44, 60323 Frankfurt / M, registered with the local court
Frankfurt / M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de).