Understanding Portfolio Insurance Management (CPPI/TIPP)
- 22 July 2024 (7 min read)
Portfolio Insurance, also known as CPPI (Constant Proportion Portfolio Insurance) or TIPP (Time Invariant Portfolio Protection), is an investment strategy designed to protect partly or entirely the initial capital while providing potential returns based on market performance. This approach involves splitting the portfolio between low-risk and high-risk assets and continuously adjusting the allocation to maintain full or partial capital protection. The strategy aims to increase exposure to high-risk assets in rising markets and decrease it in falling markets, requiring precise daily monitoring and rebalancing. Key components include the floor (minimum value for capital protection), cushion (portion of investment value that can be lost without compromising protection), and multiplier (determines high-risk asset exposure).
Portfolio insurance can be offered with or without formal protection, with the management techniques remaining unchanged. Different types of protection, such as formal protection with a gap swap, objective of protection with or without a gap swap meet the diverse needs of different types of investors. Additionally, a ratchet mechanism can lock in gains achieved during the investment period to protect the capital and guarantee a portion of the gains. The strategy's active management approach helps counterbalance the trend-following behaviour and potential downsides, providing a dynamic and adaptable investment solution for both retail and institutional investors.
AXA IM's unique approach to Portfolio Insurance Management combines quantitative analysis, risk management expertise, and active management to deliver customized solutions aligned with specific investment goals. The systematic investment strategy is enhanced by actively managing high-risk asset exposure and interest rate hedging, setting it apart from other portfolio managers or banks offering synthetic strategies.
CPPI/TIPP strategies mitigate emotional decision-making by providing full or partial capital protection and may be tailored to a broad client base with customizable features. In essence, these strategies offer peace of mind to cautious investors, hedge financial risks for institutional investors, and protect pension funds for UK Defined Contribution Plans, making of them an appealing and secure investment option
Derivatives Overlay
Overlay strategies are investment techniques used to manage specific risks or enhance the performance or risk return profile of an existing investment portfolio.
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Disclaimer
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient.
This material does not contain sufficient information to support an investment decision. Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ