Picto_Video Defensive Strategies

Theam quant funds

Defensive strategies

Why defensive strategies ?

Benefits of investing in defensive strategies :

  • Leverage on sources of yield not naturally available with low risk.
  • Mitigate the impact of market volatility.
  • Diversify portfolios while controlling risks and capital costs.
  • Implement fully transparent solutions.
  • Optimise return on Allocated Capital (e.g. regulatory capital, economic capital and rating agency).

Typical investment process

See below how an equity investment process can be built to transform a pure directional risk into a yield-orientated investment.

 

In equities for example, a core portfolio of stocks selected based on fundamentals is complemented by the sale  of short-dated call options (enhancing the yield and reducing the volatility) and by the purchase of long-dated  put options aiming to improve the risk/return ratio compared to a direct investment in the stock strategy.

Investment Yield for Insurers

  • Fixed income remains the primary driver of yield for insurance companies but as traditional strategies have generated declining returns in the low-yield environment, insurers face a difficult situation to help match  guarantees on back-books or policyholders’ expectations.
  • Insurance companies have been spurred to search for new investment opportunities, including alternative asset classes such as Long/Short investments. Yet they are sometimes wary of adding equity, lower rated  corporate bonds or alternatives to their portfolio due to the high capital  charges under Solvency II (SCR market ranging from 22.5% of a BB 5-year  bond, 39% for equity and 49% for alternative assets).
  • Moreover, these “performing” asset classes exhibit substantial volatility and drawdowns, that can lead to impairment (under IFRS or local GAAP).
  • Volatility, in the full mark-to-market framework of Solvency II, can lead as well to uncomfortable variations of the SCR ratio by weighing on the available own funds.


Insurers facing both economic challenge and capital constraints

Source: Spence Johnson, “Deeper Perspectives” 2017              Source: Deloitte, Capital management in insurance survey         2015

Capital-efficient solutions of most asset classes

Our Solutions

THEAM Quant - Equity Factor Defensive Funds

A diversified investment into the main factors driving equity returns with a protection overlay

The funds are a risk-balanced portfolios composed of four core equity factors – momentum, quality, low volatility and value – aiming to provide capital growth by being exposed to a basket of European equities and by implementing a systematic options strategy which aims at reducing risk by minimizing volatility.

This strategy is available in European, Eurozone and US versions.

THEAM Quant - Equity Income Defensive Funds

A solvency-friendly equity strategy

The objective of the funds is to provide income and capital growth (i) by being exposed to a basket of high-dividend equities and (ii) by implementing a systematic options strategy which aims at generating additional income and reducing risk by minimizing volatility in the fund.

This strategy is available in Eurozone , European and US versions.

High Yield Europe Defensive ("HYPE")

Innovative systematic strategy providing a participation to high-yield returns at the capital cost of investment grade

 

Credit spreads are not particularly low, while absolute yield is. This leads to a difficult choice to get yield. High yield is often ruled out, despite its effective returns. Find out more about our THEAM Quant – High Yield Europe Defensive.

The objective of the fund is to provide capital growth (i) by being dynamically exposed to a long position on European high yield credit and (ii) by implementing a systematic options strategy which aims at reducing risk by minimizing volatility and drawdown in the fund.

THEAM Quant - Multi Asset Diversified Protected

A low SCR protected fund exposed to an award-winning multi asset strategy based on trends

The Multi Asset Diversified Protected fund seeks to increase the value of its assets over the medium term by being exposed to a diversified long/short basket, the components of which are chosen using a systematic selection method based on different asset classes (equities, fixed income, commodities and real estate). The exposure to the dynamic basket will be adapted in order to keep the annual volatility at a target level of 10%. In addition, the Fund benefits from a protection mechanism from BNP Paribas, whereby any investment made in the Fund benefits from an 80% capital protection of the maximum NAV over the previous sliding year.

  • Diversified investment universe covering several asset classes to multiply investment opportunities
  • Dynamic allocation, entirely reviewed each month, to ensure reactivity to changing market conditions
  • An investor friendly framework: UCITS and with daily liquidity
  • Partially protected investment with an 80% protection over 1 sliding year

For more details, please check the product page which is accessible through the table at the botom of this page.

Related posts

Related funds

Funds Investment theme Asset Class Style
THEAM Quant - Equity Euro Long Dividends Defensive Strategies Equities Dividends
THEAM Quant - Equity Europe Income Defensive Defensive Strategies / Income Equities Defensive / Income
THEAM Quant - Equity Eurozone Income Defensive Defensive Strategies / Income Equities Defensive / Income
THEAM Quant - Equity US Income Defensive Defensive Strategies / Income Equities Defensive / Income
THEAM Quant - Equity Europe Factor Defensive Factor Investing / Defensive Strategies Equities Defensive
THEAM Quant - Equity Eurozone Factor Defensive Factor Investing / Defensive Strategies Equities Defensive
THEAM Quant - Equity US Factor Defensive Factor Investing / Defensive Strategies Equities Defensive
THEAM Quant - High Yield Europe Defensive Defensive Strategies / Income Fixed Income Defensive / Income
THEAM Quant - Multi Asset Diversified Protected Liquid Alternatives / Defensive Strategies Multi-Asset Protected

Investments in the aforementioned fund are subject to market fluctuation and risks inherent in investing in securities. The value of investments and the revenue they generate can increase or decrease and it is possible that investors will not recover their initial investment. Source: BNP Paribas Asset Management Holding, registered with the Paris Registry of Commerce and Companies under number 682 001 904 as a Limited Company with share capital of 23 041 936 euros. Registered office: 1 Boulevard Haussmann, 75009 Paris. Postal address: TSA 47000/75318 PARIS CEDEX 09

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