Asia continues to lag other regions for integrating ESG principles with investing; better data and stronger regulatory requirements will help institutional investors, market observers say.
The Capital Protection Investment Link Fund is a three-year scheme that uses the Sharia concepts of wa'd to generate returns and murabaha to provide a capital guarantee. The investment is benchmarked against two asset classes: property, in the form of the European Public Real Estate Index and the Tokyo Stock Exchange Reit Index, and a basket of commodities, comprising oil, copper and zinc.
At maturity, returns are calculated depending on whichever asset class has performed better. If property outperforms, the portfolio will comprise 70% property and 30% commodities, and vice versa if commodities out-perform.
When the strategy is applied to historical data, with start dates between March 2003 and June 2004, it would have provided investors with an average return of 15.46%
"The underlying asset classes have been chosen with a lot of care and analysis to try and bring to the investors a portfolio that has a high probability of generating strong returns over the three-year period," says Sanjeev Nanavati, Citi's Malaysia country head for the markets and banking group.
Investors give up roughly 30% of the upside in the underlying to pay for the principal protection, subject to market conditions at the time of the product's launch on October 19.
The structure is provided by Citi and is distributed by Hong Leong Bank, with an upfront fee of 3% û the lowest in the market, according to Hong Leong. Investors can buy in for as little as M$10,000, up to a maximum of M$2 million for each individual.
The structure also provides an element of life insurance through the Islamic concept of takaful. If an investor dies before the product has matured it will pay back up to 125% of his investment.
"The scheme is suitable for investors who would like to invest in global structure but have otherwise limited access or capabilities or are unsure of which asset allocation to invest in due to rapidly changing market environment," says En Ezamshah Ismail, chief executive of HLTM Takaful.
Global investors are advised to look selectively at Japanese equities as the country recovers from lockdown and continues to improve corporate governance.
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