Optimized Portfolio as Listed Securities (OPALS) is a financial investment product offered by the Chicago Mercantile Exchange (CME). It provides investors with exposure to a diversified portfolio of international equities through futures contracts. OPALS enables investors to access a broad range of global equity markets in a single, liquid, and transparent investment vehicle.
The OPALS contract is structured as a total return swap. It is where the investor receives the return of a reference portfolio of stocks in exchange for paying a fixed interest rate.
The reference portfolio consists of a basket of stocks from various countries and sectors, typically representing a specific index or a customized selection of securities. It becomes the reason why, OPALS aims to replicate the performance of the MSCI Emerging Markets Index. It tracks the performance of stocks from emerging market countries. However, it utilizes a synthetic replication approach instead of physically holding the individual stocks in the index.
In the OPALS strategy, the IFC enters into swap agreements with a select group of international investment banks. These banks, known as swap counterparties, agree to pay the IFC the return of the MSCI Emerging Markets Index in exchange for a fixed or floating interest rate. Therefore, the IFC pays the swap counterparties a return based on a portfolio of listed securities that the IFC manages.
OPALS offers several advantages to investors. First, it provides efficient exposure to global equity markets without the need for direct ownership of individual stocks. This allows investors to diversify their portfolios and manage risk more effectively. Second, OPALS contracts are traded on a regulated exchange, providing liquidity and transparency in pricing. Lastly, the total return swap structure allows investors to benefit from both capital appreciation and dividend income generated by the reference portfolio.
