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P2strategies Overview

P2strategies is an investment solution designed to help minimise the impact of major market drawdowns and actively reduce portfolio volatility, while allowing dynamic participation in rising markets giving investors the confidence to stay invested for the long-term.

Risks Facing Investors

SGIS understands the risks faced by investors:

  • Asset diversification failure risk: High correlations between asset classes frequently render expected diversification benefits ineffective when it mostly matters
  • Fixed Income (FI) asset risk: Following 3 decades of FI capital gains, low volatility and good liquidity – FI assets now face significant headwinds
  • Mandate restriction risk: Growth mandates limiting ability to express risk-off views
  • Manager key-man risk: Star fund manager departure or compromise
  • Manager process deviation risk: Managers deviating from their investment process
  • Manager diversification risk: Inconsistent & highly correlated performance by managers

P2strategies attempts to provide a solution to overcome these problems.

How P2strategies Works

However you access P2strategies, the theory and basic mechanics are always the same.

The initial investment is split:

  • An allocation is made into an equity fund.
  • The balance goes into a “P2account”, the value of which is designed to move in the opposite direction to the equity funds, to reduce the effects of sharply falling markets.

The P2account

Equity exposure and a number of economic factors are monitored and short futures contracts are purchased accordingly. Short futures contracts provide 2 benefits:

  • They increase in value when equity markets fall – offsetting some of the equity losses
  • When used in conjunction with an equity vehicle, they will affect the overall portfolio’s “market exposure”:

P2strategies uses a systematic investment process which is driven by a mathematical rule based program. The process is monitored 24 hours per day, to provide human oversight.

The program is based on the combination of two risk management techniques:

  1. Targeted volatility
    • Exponentially weighted to most recent data points
    • Higher volatility = increased cushioning and vice versa
  2. Capital protection
    • Based on a modified Black Scholes option pricing model

Actively producing buy or sell orders on an intra-daily basis.

Markets and P2strategies behaviour

Dynamic market exposure

As markets fall, P2strategies will reduce an investor’s equity exposure, thus minimising the impact of major market drawdowns. In rising markets P2strategies provides more equity exposure.

The key to P2strategies is that investors will see the benefits exponentially increase during periods of extreme volatility and larger market falls.

Small market movements

Small positive or negative market movements don’t alter equity exposure significantly as the other factors are not triggered. Adjusting for small movements could also lead to limiting upside potential. An investor may see high participation in minor losses, but participation will still be high if the market bounces back.

Intended Behaviour

Source: Sanlam Global Investment Solutions, Milliman and MSCI. Data shown is for informational purposes only, does not reflect an actual account and is not the result of any actual trading. This hypothetical illustration is based on a $100,000 initial investment in the Sanlam P2strategies North America Fund in December 2004 and is net of fees. The values shown for the Sanlam P2strategies North America Fund reflect the historical returns for the MSCI North America Index with the assumption of a P2strategies overlay. It is not intended to project or predict future investment returns. Past performance is no guarantee of future returns.

Sanlam Life Insurance is a licensed financial service provider.
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