Attendees at the second edition of the Funds Society Leaders Summit, in collaboration with CFA Society Spain, were able to learn a bit more about defined return investing through WisdomTree’s analysis, presented by Tom May, Global CIO, Outcome and Derivative Strategies at the firm.
In his presentation, May recalled that equity securities generate long-term returns, but these can vary considerably over time. Currently, for example, “European equities have a positive expected return, but exhibit severe drawdown events and fat tails.”
In this scenario, defined return investments—known as autocallables—increase the probability of achieving a specific return target. These types of products “harness the spread between equity forward and realized returns (ERP), as well as the persistent premium of implied volatility over realized volatility (VRP), to deliver higher and consistent yields,” May assures.
Ultimately, he poses the question of why settle for uncertainty when an investor can define their return and focus on achieving a defined yield in the most likely scenarios to maximize the investment.
WisdomTree’s defined return strategies feature a diversified portfolio of autocallable securities. But how does an autocallable security work? It is a structured investment product whose maturity and payouts depend on the performance of the underlying asset.
In short, autocallables allow for greater visibility regarding returns and a more probable path. Historically, forecasts and actual results have aligned, as seen when analyzing the real and projected performance of a portfolio of autocallable products historically managed by the WisdomTree team.
Why consider WisdomTree’s defined return autocallable strategies? May’s presentation highlights several reasons:
1.- Defined positive return in pre-established markets: Autocallables are designed to offer a positive return over their lifespan, unless the market suffers a significant drop and remains at those levels for an extended period.
2.- Higher probability of achieving expected outcomes: A diversified portfolio of autocallable securities can limit return variance within a target distribution range, increasing the probability of reaching that target.
3.- A more predictable investment process: A diversified portfolio of autocallable securities can capture long-term equity risk premiums while reducing the dispersion of returns that equity investors would otherwise face.
With its WisdomTree Defined Return Autocallable Strategies fund, the investor gains access to an equity-linked return, with defined outcomes and daily liquidity, through a product that actively manages a diversified portfolio of autocallable products and collateral, continuously optimizing maturities, thresholds, index pairs, and collateral. The product’s active approach adapts to market conditions, backed by 13 years of experience in these types of products.
