Merrill Lynch has launched new certificates linked to MAST (Multi Asset Strategy), a rules-based, multi-asset strategy developed by Merrill Lynch R
Merrill Lynch has launched new certificates linked to MAST (Multi Asset Strategy), a rules-based, multi-asset strategy developed by Merrill Lynch Research which targets sustainable returns with low risk and daily liquidity.
The Multi Asset Strategy (MAST) Index is based on analysis by Merrill Lynch Research suggesting that risk may be reduced by allocating funds across uncorrelated assets and then using leverage to increase investment returns.
Pierre Mendelsohn, head of Securitised Products, EMEA says, “This is an important milestone for us because multi-asset investing lies at the heart of our clients’ portfolios. The solid quantitative framework of MAST combined with its daily liquidity make it suitable to a wide array of clients, ranging from large institutional investors to individuals. MAST1 Certificates are already a big step forward, because they allow investors to invest in MAST at low cost via a single, liquid, exchange-listed security. MAST2 Certificates go even further by providing built-in 2x leverage on very attractive terms and, at 8%, their target volatility is very low compared to equities.”
The certificates will be publicly offered from 1 September 2008 in the following countries: Germany, Switzerland, Belgium, France, the Netherlands, Luxembourg and Italy. Merrill Lynch may launch further MAST-linked products in other markets over time.
MAST Index uses four indices – the Merrill eXtra Commodity 03 Index, the Merrill Foreign Exchange Arbitrage Index, the MSCI World Index and the Merrill Lynch 10-year U.S. Treasury Futures Index – thereby creating exposure to a global diversified basket. The index is reset every six months to adjust to changing market conditions. The low correlation between the constituents of the strategy reduces the risk level compared to a conventional 70% equity/30 fixed income strategy. A back test of MAST showed that using four uncorrelated assets added 3.2% return per annum compared to the 70% equity 30% fixed income mix over the 15.5 year back-test period. An additional 4.1% return was reflected in the back test when leverage was applied to the study.
The MAST1 index represents the basic, non-leveraged version of the strategy where asset allocation is determined to minimise market risk.
MAST2 represents the two times leveraged version of the strategy which targets twice the volatility of MAST1.