Going one better

Using a multi asset approach offers the chance to outperform in all market conditions, and to achieve more stable, less volatile returns than equity markets. Such a strategy can be a powerful diversifier, offering low correlation with traditional asset classes.

It makes sense to include an absolute return strategy with capital protection as part of the overall asset allocation of a balanced portfolio, complementing investments in traditional assets. It can be used to add a lower risk alternative to the equity part of the portfolio, offering lower downside risk while still retaining the potential to achieve high long term returns, as well as the potential to enhance the return potential of a portfolio's bond allocation and seek returns above deposit rates.

One very pertinent issue to consider regarding capital protection, which is a key component of many structured funds, is the question of just how the capital is being protected and by whom. In light of recent events, such as the demise of Lehman Brothers and the retail structured products that they provided, it is essential that investors consider what counterparty risk they may be exposed to. The Privalto Stabiliser funds are backed by BNP Paribas, which currently has one of the strongest credit ratings (AA+) world according to Standard & Poor's. Any further credit risk is mitigated by the posting of AAA rated G7 Government bonds as collateral with an independent third party depository to reduce any potential exposure to BNP Paribas.

Conclusion

The ability to participate in the growth of various major markets while staying within the lowerrisk nature of absolute return fnds with capital protection is a compelling option.

With the potential for growth in excess of cash, these can be seen as wealth preserving alternatives to term deposits or bonds, and can also be used as a means to diversify assets in a portfolio during the asset allocation process.