Even the best-diversified investment fund can fall in value when the financial markets are doing less well. For fewer fluctuations, you can top up your investment strategy with floor monitoring. Behind floor monitoring lies a mathematical management model that aims to keep the value of your investment continuously above a pre-determined floor price. To achieve this, the model distinguishes between risk-bearing investments (such as shares, bonds and real estate) and risk-mitigating investments (cash).
How does floor monitoring work?
If the financial markets perform well, a fund of this kind will diversify in accordance with the KBC Investment Strategy.
- If the markets are falling, the model will signal that more cautious investment is required and risk-bearing investments will be switched to risk-mitigating ones.
- If the markets bounce back, the management model will again allow more risky investments to be included, or partially included, assuming the distance to the bottom and the degree of fluctuation in the financial markets allow.
Where does the floor price lie?
You determine exactly where the floor price lies. Depending on your risk appetite, you can opt for a floor price at 95%, 90% or 85%. This price is reset annually, based on the net asset value of the fund at that moment. That new floor price, which may be higher or lower, represents a new start for your investment and applies for one year. Please note, however, that the floor price does not constitute a guarantee of either the return or the redemption value.
The floor price explained visually
Imagine you have opted for a formula with a floor price of 90%. The last time the floor price was recalculated, the net asset value of the investment was 250 euros. The current floor price is therefore 225 euros (= 90% x 250 euros). A year after recalculation, the floor price is reset.
Scenario 1: The net asset value of the investment has risen after that year, from 250 euros to 260 euros, for example. This means the level of the floor price can be raised from 225 euros to 234 euros (= 90% x 260 euros). That new floor price is, again, valid for one year.
Scenario 2: The net asset value of the investment has fallen after that year, from 250 euros to 240 euros, for example. In that case the floor price is lowered from 225 euros to 216 euros (= 90% x 240 euros). That new start enables the fund manager to re-enter the market with a limited loss, to track recovery when financial markets rally.
Extra innovations for an even better result
We closely track market conditions and refine our model with extra innovations to respond to these conditions as effectively as possible. Here's a helpful list.
Greater upside potential when market conditions are favourable
When financial markets are performing well, the management model also facilitates the temporary and controlled inclusion of more shares in the portfolio. That only happens if the distance to the floor price is wide enough and volatility on the stock markets remains within certain limits. Upside potential is therefore increased without losing sight of the floor.
Extra protection in the event of rising interest rates
When interest rates are low, managers must keep a watchful eye on interest rate hikes. After all, these have a negative impact on the value of existing bonds. In such cases the management model ensures extra protection by selling bonds temporarily in a controlled fashion in favour of liquidities, without reducing the share position.