BNP Paribas Multi Asset Diversified 5 Index (BNPIMAD5) Explained
The BNP Paribas Multi-Asset Diversified 5 Index (Ticker: BNPIMAD5), also known as BNP Paribas MAD 5 Index, is not a simple, static index such as the S&P 500, or Russell 2000 Index Fund. It is a multi-asset diversified index that re-allocates daily among 8 components depending on the level of volatility of each of these 8 indices.
The BNP Paribas Multi-Asset Diversified 5 Index (Ticker: BNPIMAD5) is a rules-based index comprised of eight components:
- 3 equity futures indices
- 3 bond futures indices and
- 2 commodity indices
BNP Paribas Multi-Asset Diversified Index (BNPIMAD5) Methodology
2. Dynamic Allocation
3. Volatility Control
The BNPIMAD5 Index seeks to measure the value of a hypothetical exposure to a range of asset classes and geographic regions based on momentum investing principles.
Daily, the BNP Paribas Multi-Asset Diversified 5 Index determines the weights of its components, using a rules-based methodology that seeks to identify weights for the components that would have resulted in the Hypothetical Portfolio with the highest return subject to a certain level of volatility.
On any given day, this methodology will allocate a larger percentage of the BNPIMAD5 Index towards components of the Hypothetical Portfolio that would have resulted in the Hypothetical Portfolio with the highest past returns1 subject to a certain level of volatility and weighting constraints.
The Index also includes an additional risk control mechanism that seeks to maintain its short-term volatility at the volatility target of 5% daily. This mechanism adds a further layer of volatility control to the value of the Hypothetical Portfolio to reduce volatility during unstable and unpredictable market periods.
BNPIMAD5 index levels are net of rebalancing and replication fees, incorporate a daily Maintenance Fee of 0.50%, and are published on Bloomberg under the ticker BNPIMAD5 Index.
It is an Excess Return Index because its components are excess returns, and their returns are derived from changes in price (known as price return) and profit or loss gained from rolling from one futures contract to another (“roll-return”).
Unlike Total Return Indices, it does not derive returns based on interest earned on cash or other collateral deposited in connection with it is the purchase of futures contracts.
BNP Paribas Multi Asset Diversified 5 Index Components
On a daily basis, the BNPIMAD5 Index dynamically rebalances the weightings of its components according to a proprietary, rules-based methodology in an attempt to weight each component optimally based on historical returns and current volatility.
This can be explained in three steps:
The BNPIMAD5 Index begins by creating a universe of potential Hypothetical Portfolios where the components are differently weighted across the board and underweight constraints.
The BNPIMAD5 Index then tests the different portfolio combinations in the universe, considering only those that have demonstrated long-term realized volatility below a certain level.
Out of the remaining portfolios after step 2, the final Hypothetical Portfolio is chosen based on the BNPIMAD5 Index rules and a proprietary methodology that takes into account momentum-investing principles that allocate more to recent outperformers and less to recent underperformers.
Listed below are the 8 index components that make up the BNP Paribas Multi Asset Diversified Index.
Equity Futures Indices
- BNP Paribas Eurozone Equity Futures Index
- BNP Paribas Japan Equity Futures Index
- BNP Paribas US Equity Futures Index
Bond Futures Indices
- BNP Paribas USD 10Y Futures Index
- BNP Paribas EUR 10Y Futures Index
- BNP Paribas JPY 10Y Futures Index
- Bloomberg Commodity ex-Agriculture and Livestock Capped Index
- S&P GSCI Gold Index Excess Return
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A Rules-Based Index is an index where the weightings of the components are determined following a preset algorithmic set of rules and proprietary formulas.
A Futures contract is an agreement, to make and receive a cash payment based on changes in the price of a particular commodity or financial instrument at a pre-determined date in the future. The indices compiling the BNPP MAD 5 Index are Index Futures, which track the performance of certain futures contracts.
The Hypothetical Portfolio of the BNPP MAD 5 Index represents the basket of the eight (8) components, whose individual weighting is dynamically adjusted on a daily basis according to the BNPP MAD 5 Index methodology. There is no actual portfolio of assets to which any person makes any investment or has any ownership interest.
Volatility is the amount of price variation in an asset or security. High volatility means the price moves up and down in wide ranges over a period of time. Low volatility means that the price does not change as dramatically, but rather changes at a more gradual pace
BNPIMAD5 Index Diversification
The BNP Paribas Mult Asset Diversified 5 Index attempts to measure the hypothetical exposure to a range of asset classes and geographic regions by drawing on the performance of eight index components, which have been selected based on the following principles:
Diversity in geographic zones covered
The components that form the BNPIMAD5 Index are representative of three different geographic zones (U.S., Europe, and Japan).
Use of market benchmarks
The components that form the BNPIMAD5 Index are futures-based indices tracking the performance of futures contracts referencing market benchmarks where such futures contracts are typically highly liquid and representative of market movement.
Components representing multiple asset classes
The components represent a range of generally non-correlated assets including equities, commodities, and government bond futures which are sub-components of the components that comprise the Index.
BNPIMAD5 Index Dynamic Allocation
BNPIMAD5 Index Re-Allocates Daily
The charts and tables below show an analysis of the levels of the BNPIMAD5 Index. The BNPIMAD5 was launched on January 25th, 2016. The prior performance shown is simulated.
On a daily basis, the Hypothetical Portfolio of the BNPIMAD5 Index targets an annualized realized volatility of 5% utilizing a set of rules that seeks to manage the hypothetical portfolio’s short-term volatility on a daily basis in changing market conditions.
This mechanism complements the control over long-term volatility which is part of the BNPIMAD5 dynamic allocation methodology. (See Step 2 under Dynamic Allocation).
The Realized Volatility of the daily hypothetical portfolio is the highest trailing 21-day historic volatility calculated over a sliding 20-day period.
If the realized volatility exceeds the 5% target volatility rate on any day, the BNPIMAD5 Index will reduce the weight of the hypothetical selected portfolio and rebalance it with a non-remunerable hypothetical cash position.
Based on the realized volatility, the BNPIMAD5 Index may be partially or wholly invested, and will not earn interest or any other return with respect to that cash position.
BNPIMAD5 Index Hypothetical Historical Weightings
Sources: Bloomberg, BNP Paribas as of December 31st, 2020. Past performance is not an indicator of future performance. The BNP Paribas Multi-Asset Diversified 5 Index Is based on Hypothetical Past Performance Data prior to January 25th, 2016. Because the BNPP MAD 5 Index did not exist prior to this date, all retrospective levels provided in the graph and table above are simulated and must be considered illustrative only.
The presentation of hypothetical data reflects the deduction of fees and charges. These simulations are the result of estimates made by BNP Paribas at a given moment on the basis of the parameters selected by BNP Paribas, certain assumptions that may or may not hold in future periods, market conditions at this given moment, and historical data, which should not be used as guidance, in any way, of the future results of the BNPP MAD 5 Index.
The BNPIMAD5 Index in an Athene Annuity
Below shows a hypothetical rate of return for the Athene Performance Elite 7 Index Annuity with the BNP Paribas Multi Asset Diversified 5 Index. These numbers were back-tested using the 2-Year BNP Paribas Multi-Asset PTP Participation Rate Strategy and interest rates current as of March 2, 2021.
The values in the tables below are based on BNP Paribas MAD 5 index values from 12/31/2009 to 12/31/2020.
Additional BNPIMAD5 Resources
You can track the current and historical performance of the BNPIMAD5 Index and compare it to other popular market indexes on the Financial Times Website.
You’ll find more in-depth and interactive information about the BNP Paribas MAD 5 Index on the BNP Paribas Webpage dedicated to the BNPIMAD5 Index. Here you will be able to access the official brochure, a PowerPoint presentation, a 3-minute video, and the daily closing levels.
Click here to download the BNP Multi-Asset Diversified 5 Index 4-Page PDF.
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A fixed index annuity is a type of deferred annuity that offers upside potential when the market performs and downside protection from a potential market downturn. Rather than guarantee an annual interest rate like a fixed annuity (“CD-Type Annuity”), an indexed annuity credits interest based on the performance of an external market index (such as the S&P 500 ).
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