Citigroup is preparing to launch a best-of capital protected note in Australia that offers exposures to three different asset allocation strategies. "This takes asset allocation out of the investment process," said Michael Walker, head of equity structured products in Sydney. The structure, which will be launched by the end of the month, also gives investors exposure to three different asset classes. "It's unique in Australia," added Walker, noting this is the first product for Australian retail investors with a best-of option on three different allocation strategies.
The three different asset classes consist of an equity basket made of indices including the Standard & Poor's 500, Dow Jones Euro STOXX 50 and the Nikkei 225; a bond/currency basket comprised of the Citigroup U.S. Government Bond Index and the Australian dollar; and a commodity basket which includes aluminum, copper, gas and oil via futures contracts.
The structure runs three different weightings of investment in each basket to make up the different allocation strategies. An aggressive allocation is 60% weighted in equity, 10% in bonds/currency and 30% in commodities, while a balanced strategy has equal weightings, and a third commodity strategy is 70% weighted in commodities with 15% weightings in the two other portfolios. At the end of three years the investor receives the return of the best performing allocation strategy, with a minimum total return of 4.5%. The participation rate is expected to be around 80-90%.