Tuesday, 16 April 2024 Reading time : 3 minutes

Bonds are making a comeback after leading central banks have ended their zero interest rate policies. The yield curve in Switzerland, for example, is back in positive territory for all maturities. «The Swiss franc-denominated bond market is characterised by very high quality – and quality currently looks attractively valued,» explains Sébastien Zöller, Head of Fixed Income Asset Management at Zürcher Kantonalbank, in an interview with Curdin Summermatter, Head of Structured Products Sales. Yield prospects are also attractive on the US credit market, where USD investment-grade corporate bonds are currently yielding around 5%. However, in the credit segment it is particularly important to scrutinise the risk/return profile, as credit risks are not always adequately compensated, explains Zöller.

As bond yields rise, investor interest in the asset class is picking up again. However, investing in bonds is often more complex than investing in equities, for example. High minimum investments or low liquidity can make access to the bond market more difficult and pose challenges for market participants. Actively managed certificates on bonds can help overcome these hurdles.

Features of bond AMCs
Actively managed certificates (AMCs) are structured products and are classified by the SSPA as participation products. Investors therefore participate in the performance of the underlying, which is usually a basket. AMCs on a basket of shares are quite common, but in the current interest rate environment, bonds are once again of interest, depending on investor requirements. As always with structured products, it is important to consider the creditworthiness of the issuer.

Similar to other investment vehicles, investors' funds are pooled in a bond AMC to pursue a specific investment strategy. The investment manager defines the strategy when the product is launched. However, the bond portfolio is then managed through the certificate. This approach offers the following advantages:

1. Same execution price for all
All investors receive the same execution price for each transaction. To ensure this, smooth execution is a prerequisite. At Zürcher Kantonalbank, clients benefit from the expertise and extensive network of the bond execution team.

2. Strategy adjustment in a single transaction
If the investment manager wants to rebalance the portfolio, he or she makes the adjustment in the certificate. By this single transaction, all investors' portfolios are managed. There is no need to rebalance each client portfolio individually. This makes the management of the bond portfolio more efficient.

3. Easy market access
As certificates can be traded in relatively small units, a bond AMC provides access to the bond market, which is often characterised by hurdles such as high minimum investments. Investors may gain exposure to a diversified bond portfolio, which without a certificate would require a very large investment.

Management via platform
It is key for investment managers to be able to manage the certificates easily. Zürcher Kantonalbank's platform is ideal for this purpose, as it allows the products to be managed securely and efficiently. It is already widely used for the management of equity certificates but is also suitable for use in the bond segment. Investment managers can easily rebalance the bond portfolio, manage credit risk or adjust duration over the platform. The cost of each product is transparent, and performance can be tracked at any time.

 

Disclaimer
This communication is for marketing purposes. It is neither an offer nor an invitation to submit an offer, to purchase or to subscribe to securities and does not constitute investment advice. You should consult your advisors before making an investment decision. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, financial condition, development or performance of the issuer to be materially different from any future results, financial condition, development or performance expressed or implied by such statements.
The present document has not been drawn up by the research department as defined in the rules of the “Directives on the Independence of Financial Research” published by the Swiss Bankers Association, hence these rules do not apply to this document. If securities are mentioned in the communication, the base prospectus, the final terms and any key information document may be obtained free of charge from Zürcher Kantonalbank, Bahnhofstrasse 9, 8001 Zurich, VRIS, and from www.zkb.ch/finanzinformationen.