Target Strategy: A Practical Application to ETFs and ETCs

During the last 20 years, many asset/fund managers proposed different absolute return strategies to gain a positive return in any financial market condition. These kind of financial products were created without a comparison benchmark, but only with a floor return given by Euribor. The Euribor plus products became very popular during the period 2000/2007 but few of them were able to obtain good returns during the following years 2008/2011. The main problem was that no one had a methodology for tracking the target return they described in the prospectus. In this study we propose a new absolute return strategy based on a quantitative methodology which exploit a risk-adjusted performance indicator (Diaman Ratio) and the logic of Konno and Yamazaki model in order to offer, at the risk-averse investor, a tool that allow him to get a target return in a defined time period whichever will be the beginning of the investment horizon. An application to ETFs and ETCs will be analyzed.