Hong Leong Bank (HLB) recently launched the Hong Leong Strategic Commodities Floating Rate Negotiable Instruments of Deposit (FRNID) , a 4 Year100% capital protected productaiming to provide a targeted annual income of 6% through exposure to a commodity-linked index. This index seeks to combine the strengthsof discretionary and systematic management techniques and is designed to enable investors to benefit from both bullish and bearish market phases. Inaddition to a target annual income, the product investment strategy also aims to grow customers initial invested capital by locking in the highest netasset value (NAV) observed over the duration of the product and pay this out at maturity.
"With the current low interest rate conditions, Malaysian investors are looking for alternative investment instruments," says Ms Moey Tan, HLB's ChiefOperating Officer for Personal Financial Services. "We developed a product which could potentially enhance customers' income yields while providing bothcapital growth and the comfort of capital protection. Our new FRNID meets all 3 criteria."
She added, ‘We have over the last 18 months witnessed market risk increase three to five fold. The VIX index, a measurement of risk of US stocks, increaseddramatically to above 70 points. With this in mind, our objective was to develop a product whereby customers can take less risk and potentially make higherreturns in both positive and negative market conditions. Unlike many commodity products on the market which expose customers to directional investmentrisks and are thus heavily dependent on market sentiment, the Hong Leong Strategic Commodity FRNID offers customers access to a unique market neutralinvestment strategy, whereby returns can be earned in an up or down market.
The other unique feature of this product is that customer's returns are generated through commodity futures contract trading, adding a valuablediversification effect to their portfolio. Almost 2 years into the crisis, investors are looking towards more tangible assets - agricultural commodities ingeneral and precious metals like gold have traditionally outperformed other asset classes in recessionary times. "Unlike corporations, gold or oil cannotgo bankrupt, and a barrel or bullion will always preserve some tangible value," says Ms Moey Tan . Certain studies have shown that a conservatively managedportfolio should have a weighting of between 9-13% invested in commodities.
In light of the unique characteristics of each commodity (seasonality, population boom, fluctuation of supply/demand, geopolitical factors, etc.), timingand investment strategy remain crucial. The Hong Leong Strategic Commodity FRNID is designed to look at fundamental and technical factors for various typesof commodities and make decisions on whether to buy into or sell out of specific commodity contracts. For example, if the product decides that gold willfall in the near future, it is designed to take a short (sell) position on gold. If the product detects a trend that gold is rising, it is designed to takea long (buy) position on gold. The decision model uses quantitative and qualitative data to decide on whether to buy or sell.
Unlike many products in the market, Hong Leong Strategic Commodities FRNID is a truly broad based commodity product which invests in 25 major commodities,ranging from energy, base and precious metals all the way through to agriculture. Customers who invest in this product gain the advantage of a diversifiedportfolio, a potential annual income, capital growth and full capital protection at maturity.
The Hong Leong Strategic Commodities FRNID has a limited size of RM50 million and is offered for a limited period of 30 days only. Offer period ends 30 thJune 2008. "We are confident that this new FRNID would be sold out before the subscription period," added Ms Tan.
To find out more on the new product, visit any of Hong Leong's 185 branches nationwide.
Press Release - 15/06/2009