RETAIL INVESTMENT | Cesar Tordesillas, Malaysia

Hong Leong to enhance income yields and capital

Hong Leong Bank launched a four-year 100 percent capital protected product aiming to provide a targeted annual income of 6 percent through exposure to a commodity-linked index.

This index seeks to combine the strengths of discretionary and systematic management techniques and is designed to enable investors to benefit from both bullish and bearish market phases.

The Hong Leong Strategic Commodities Floating Rate Negotiable Instruments of Deposit or FRNID also aims to grow customers' initial invested capital by locking in the highest net asset value observed over the duration of the product and pay this out at maturity, in addition to a target annual income.

"With the current low interest rate conditions, Malaysian investors are looking for alternative investment instruments," said Ms Moey Tan, HLB’s Chief Operating Officer for Personal Financial Services. "We developed a product which could potentially enhance customers' income yields while providing both capital growth and the comfort of capital protection. Our new FRNID meets all three 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, increased dramatically to above 70 points. With this in mind, our objective was to develop a product whereby customers can take less risk and potentially make higher returns in both positive and negative market conditions. Unlike many commodity products on the market which expose customers to directional investment risks and are thus heavily dependent on market sentiment, the Hong Leong Strategic Commodity FRNID offers customers access to a unique market neutral investment strategy, whereby returns can be earned in an up or down market."

The other unique feature of this product is that customers' returns are generated through commodity futures contract trading, adding a valuable diversification effect to their portfolio. Almost two years into the crisis, investors are looking towards more tangible assets – agricultural commodities in general and precious metals like gold have traditionally outperformed other asset classes in recessionary times. "Unlike corporations, gold or oil cannot go bankrupt, and a barrel or bullion will always preserve some tangible value," said Ms Moey Tan. Certain studies have shown that a conservatively managed portfolio should have a weighting of between 9–13 percent invested in commodities.

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 diversified portfolio, a potential annual income, capital growth and full capital protection at maturity.

The Hong Leong Strategic Commodities FRNID has a limited size of US$14 million and is offered for a limited period of 30 days only. Offer period ends 30 June 2009.

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