Have you considered “tactical investing”?
Abraham Robertson on 09 Jul 2021
In this article, I explain why we use the term tactical investing to describe some of the products you can access on the Stropro platform.
But before I proceed please note this is just my opinion. It is not financial advice and you should consider your own personal circumstances before investing in any financial product.
I am one of the co-founders of Stropro but I am relatively new to the world of structured products. Since Stropro, my wife and I have started allocating more and more of our liquid assets into products arranged on the Stropro platform. The products we have invested in provide exposure to Europe, US, China across commodities, banks, Technology and index plays. They range in payoffs from accumulating return, fixed coupons to more extravagant structures.
So, what do I mean by tactical investing?
Stropro’s products often start with a theme. Recently, we have increasingly fielded interest from our clients seeking ESG opportunities. The sentiment is that future growth will be green and emerging industries will outperform.
The example I will use to illustrate tactical investing came from one of our issuers. They identified an opportunity in the Chinese Electric Vehicle market, and we loved it.
Our client base formed a strong conviction behind this theme. The market for Electric Vehicles in China is under a central government directive to grow, and a centrally planned economy provides a unique playground for forecasting growth.
The product we arranged considered a few things:
How to maximise exposure to the growth opportunity presented by the theme?
How to limit the downside exposure?
How to isolate the performance against market noise that may impact returns?
With a thesis that Electric Vehicle sales will likely grow in China, we identified an index that provides exposure to a broad range of companies that are likely to benefit from the Chinese Electric Vehicle industry expansion. The index includes car manufacturers to companies providing raw materials and battery technology.
The product was structured with two legs: one leg is long the Electric Vehicle index and the other leg is short the broader Chinese equities market. This structure isolates the performance of the electric vehicle sector versus the broader market. To enhance exposure, derivatives are used to gain leverage into the divergence between the long and short legs. So in this example for every $7,000 invested, an investor has $100,000 exposure for a 2 year term.
To provide stability, the product has an embedded volatility management feature. The intent of this feature is to smooth the performance over the term and cushion against short term price fluctuations.
Let me emphasize this is a high risk product. If the underlying thesis does not transpire, investors will lose their entire investment. It is a high conviction investment. For example, if the Chinese EV market is outpaced by the broader market then you lose your entire investment. But while this is a high risk product, I consider it to be efficient capital allocation because my downside exposure is capped. Coming back to the example there is $100,000 exposure on the upside but the maximum loss is only $7,000. I can't lose more than I invested, but I can magnify my returns.
Tactical investing offers the benefits of derivatives trading (risk management, enhanced exposure) conveniently packaged into products. As an investor I don’t need to manage my open positions or worry about margin calls. I can let it run to maturity and the Stropro platform provides me the ability to monitor progress.
So how is the product performing? After 4 months the product is tracking positively at +5.6%. Coming back to our example investment the $100,000 exposure has grown to $105,600. The unrealised return is $5,600 but as noted above the breakeven point is $7000. It is off to a strong start with 20 months to run.
Via the Stropro platform investors can access tactical investments that provide exposure to global markets and emerging thematics. We appreciate that many investors have less experience with tactical investments, so we try to keep it simple. To support investors, we provide presentations, videos and other educational material to assist them and their advisers to learn about these products.
We have more than 500 clients on the platform and issued over $30M in products into 22 different products. It costs nothing to join… but you do need to be wholesale or sophisticated!
If you are interested in reviewing these past products or upcoming products please register on the Stropro platform by clicking here.
This article has been prepared by Abraham Robertson. Abraham Robertson is a Director of Stropro Operations Pty Ltd (ABN 28 633 603 399) (Stropro). This article is for educational purposes and is not a substitute for professional and tailored financial advice. This article expresses the views of the author(s) at a point in time, which may change in the future with no obligation on Stropro or the author to publicly update these views. This article uses information from sources the author considers to be reliable but does not represent that such information is accurate or complete, or that it should be relied upon. Past performance is not a reliable indicator of future performance. Investments may rise and fall in value and returns cannot be guaranteed. Stropro makes no representations or warranties, express or implied, as to the accuracy or completeness of the information it provides. Stropro is a Corporate Authorised Representative (CAR No. 1277236) of Lanterne Fund Services Pty Ltd (AFSL No. 238198).