UBL Funds offers new ‘risk-free’ fund for cautious investors

UBL Principal Protected Fund 2 will be offered to investors on July 15.

KARACHI:

Ever since the establishment of the world’s first stock exchange in Amsterdam 411 years ago, investors have tried to come up with an investment strategy that can multiply their wealth in a bullish market, and prevent gains from being wiped out in a bearish one.

But aside from asset allocation plans that try to minimise losses and maximise gains, no one can claim to have devised the perfect product which promises investors a blanket guarantee of the protection of their stock investments.

However, based on the principles of Constant Proportion Portfolio Insurance (CPPI) – an asset management strategy first developed by US investment bank Goldman Sachs in 1962 – UBL Funds has launched a new fund under the name of UBL Principal Protected Fund 2 (UPPF 2). Its initial public offer (IPO) will commence on July 15 and continue till July 17.

With UPPF 2, investors can have up to 100% exposure to the equity market, while ensuring that their principal amount remains protected. With a term period of two years, investment in this fund can be initiated with Rs10,000.



Just like UPPF 1, which was launched on February 3, 2012, UPPF 2 uses the CPPI methodology, which UBL Funds claims to have introduced in the country for the first time.

The CPPI methodology sets a floor on the rupee value of an investors’ portfolio. It then uses risky and riskless asset classes – ie stocks and money market instruments – to maximise exposure to equities during a bullish season, and minimise it in a bearish spell. It does so by diverting a larger portion of the fund to riskless investment instruments. A capital protected fund maximises investor benefits through its profit lock-in feature, thus securing a certain percentage of unrealised gains from the equity portion in case of any subsequent fall in the stock market.

UPPF 2 is being launched after UPPF 1, which has already generated returns of 48% from its inception last year till June 27, 2013. “Since these funds have a limited window during which investors can apply for subscription, periodic tranches are launched for investors who missed the earlier tranche or would like to make additional investments in our CPPI-based series,” UBL Funds Head of Marketing and Alternative Distribution Channels Raeda Latif told The Express Tribune on Thursday.

“UPPF 2 is especially well-suited for conservative investors, who want to gain exposure to equities, but do not want to risk losing their principal at the end of the 24-month fixed tenure of the fund,” she added.

Investors may enter UPPF 2 only during its pre-IPO and IPO periods, which will expire on July 17. UBL Funds encourages investors to stay in the fund until its maturity in two years. However, if an investor needs to redeem before maturity, they may do so after incurring a 5% back-end load.

The performance of UPPF 2 will be judged against the benchmark followed by UPPF 1, which is the weighted average daily return of the KSE-100 Index and three-month deposit rates of AA- and above-rated banks, based on the fund’s actual participation in the equity and debt/income component.

In the month of May, 79% assets of UPPF 1’s total size of Rs562 million were held by UBL Stock Advantage Fund – which is a stock fund managed by the same asset management company. The rest of the 21% assets were held by UBL Liquidity Plus Fund, a riskless fund, which is also managed by UBL Funds.

Therefore, UPPF 1 and 2 fall under the category of “fund of funds” while it promises that investors’ principal amount will remain protected.

“There have been many periods where equity exposure (in UPPF 1) has been over 90%,” Latif said, implying that the upcoming capital protected fund will take maximum benefit should the stock market starts booming again.

Published in The Express Tribune, July 5^th, 2013.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.