By Durraj Tase, Head of Capital Markets
Capital markets ideas for the $20-million investor
Investors today face a financial environment that is uncertain and volatile. While global growth is seemingly emerging after the recessionary phase of the last few years, there is tremendous uncertainty. Geo-political and terrorism worries continue while oil prices are at high levels.
Given this backdrop, high net worth individuals may feel frustrated by what they perceive as lack of viable investment alternatives. After a series of double-digit portfolio returns in the early to mid 1990’s, it is hard to feel good about relegating assets to low income time deposits.
But there are opportunities. High net worth investors have the ability to access product specialists for tailored principal protected structures in many underlying markets.
Citigroup Private Bank is currently (May 2004) particularly bullish on commodities and private equity and have several alternatives when it comes to gaining exposure to these markets.
In a world of low returns, we believe the bulk of expected performance should come from active management.
Investment ideas:
FOREIGN EXCHANGE
The U.S dollar has been weakening for the past 18 months. Private clients have been investing in the higher yielding currencies such as the Australian dollar, Sterling pound and New Zealand dollar. More sophisticated clients have been using derivatives and cross currency swaps. The risk in all of these investments is contingent on whether the U.S dollar regains its lustre.
U.S. INTEREST RATES
Rates are still at their lowest level in over 45 years. Rising rates affect clients both on their assets and liabilities. Private investors are hedging their large bond portfolio holdings. By purchasing put options on their bond portfolios, any decline in the underlying bond price is off-set by gains on the purchased puts.
PRINCIPAL PROTECTED INVESTMENTS
These investments allow private clients to participate in most of the financial markets, with limited or no risk of deterioration to their initial capital, when held to maturity. These instruments have been used successfully with many markets including currencies, commodities and global equities.
