Credit Suisse links to market neutral index; investors eye strategies for turbulent times

By Kenneth Lim

Boston, March 9 - Structured product investors are taking a closer look at market-neutral strategies amid turbulence in the stock markets, a distributor said.

But interest in equity-linked solutions remains thin as a lack of clarity continues to keep many investors on the sidelines, the distributor said.

One recent market-neutral product was launched by Credit Suisse, through its Nassau branch, on Monday.

Credit Suisse plans to price zero-coupon principal protected ProNotes due March 28, 2013 linked to the HS Market Neutral Index Powered by Holt.

At maturity, the notes will pay par plus any gain in the index. Investors will receive at least par.

The index reflects the difference between a long equity index and a short equity index. The long index comprises the top 75 stocks according to the Holt scoring methodology, and the short index comprises the bottom 75 stocks according to the same scoring method.

Market neutral interest

Investors have recently expressed more interest in market neutral solutions, the distributor said.

"We do see a bit more interest in two-directional products, outperformance products, barrier products," the distributor said.

"One of the factors is many structured products are offering much better potential returns than other investments," the distributor said. "The economy may be doing poorly and the markets may be struggling, but investors still want to have a decent rate of return on their investments that because of the current low interest rate environment they can't get on most risk free investments.

"We tell the investment advisers that with structured products investors can tailor the level of risk and return that they want so that they can continue to try and achieve their investment objectives."

The current volatility in the stock markets has also helped those products gain some prominence.

"These products can be attractive to investors who want a profit regardless of whether the market strengthens or weakens," the distributor said. "They essentially replicate a market-neutral strategy, where instead of buying and selling options or going long on some stocks and shorting other stocks, you buy a single product that does the same thing, but can also provide with maybe a buffer or principal protection or leverage. In an uncertain market, these can be very components in a portfolio."

Equity products still struggle

Despite the stronger overall interest, volumes of equity-linked products remain weak, the distributor said.

"I think we're victims of a broader retreat from investments in general," the distributor said. "Oftentimes when a market is as volatile as it is right now, investors who are more aggressive might look for products to take advantage of the higher volatility.

"What we're seeing now is just an unwillingness to make investments beyond the safest of products because there's no visibility at all. Nobody's looking for bargains because nobody knows where the bargains are. Things have calmed down a little since the second half of last year, but investors are still very fearful."

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