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Apollo backs Russia

Apollo Multi Asset Management has added a structured product to its IFDS Apollo balanced fund that is based on the Russian stockmarket outperforming the FTSE 100 over a two-year period.

Fund manager Tom McGrath, formerly of Miton Asset Management, says Apollo likes Russia because it is trading on three times its price-earnings ratio and believes oil prices will increase, which will make the oil-rich region profitable.

He says that rather than putting money into an exchange traded fund, the team at Apollo decided to structure a note based on a relative trade between Russia and the FTSE 100. The Russia/FTSE 100 relative return note also provides capital protection.

If Russia outperforms the FTSE 100 over the next two years, the return is 2.2 times the outperformance. For example, if Russia is up 20 per cent and the FTSE 100 is up 10 per cent, Apollo will receive 2.2 times the 10 per cent difference in outperformance, which is 22 per cent.

Apollo will still receive a positive return even if the Russian market falls, provided the FTSE 100 performs worse.
The note also provides full capital protection unless the Russian market underperforms the FTSE 100 by 40 per cent or more. To make this capital protection possible, Apollo has given up some of the growth potential, so that the maximum return is capped at 44 per cent.

McGrath says: “We struck it on March 3 and had sufficient confidence to make it initially around 7 per cent of the portfolio, but that is down to 5 per cent now.

“The note is up 10 per cent but there is a long way to go. A lot of things can happen but the capital protection is there if we need it. If it makes 44 per cent, we’ll be delighted anyway.”


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