A smart choice in combination with the portfolio construction approach is doing the trick
This strategy is gaining momentum, being in the market for 7 years and always succesful.
Short duration, no currency risk and main focus on constructing the portfolio ‘the right way’.
This approach increasingly finds a lot of attention with Family Offices, Independent Asset Managers and Pension Funds as an addition to their mainstream investments.
“In Fixed Income, there is no money to make, only losses possible”
“The massive uptrend of the long interest rates in the USA and now potentially Europe as well is a real challenge”
Such statements and other similar messages I hear very regularly. It wasn’t a sharp uptick over the full year, it was moderate (approx 60BP in a year)
Many investors hold to their investment style which was great in times of interest rates tending downwards.
But now it is about time to realise the returns made over years and reduce the (interest rate) risk, add a strategy which is resistent and well prepared for the actual market conditions.
Since summer 2016, interest rates have stopped declining. The risk one runs by appyling same investment behaviour as last couple years has been rising substantially, in particular as many do not provide a good carry.
Good news, there is a strategy for todays and tomorrows markets.
See the graph (July16 to Jan17), it tells you all. Red what I call classic strategy which worked well for years but not anymore, blue our favorite strategy. This carry approach is most likely again providing Libor + 250 and with this, overperform most of the classic approaches. No currency risk, very limited interest rate risk and working mainly in well known investment grade names.
Want to know more about it? We are very happy to show you more details. Just get in touch.
Uncertainty and volatile bond markets are leading investors more and more towards the lending markets, driven by search of yield. We have a solution which continues to flourish and we are seeing increased inflows this year. Worth to notice this provides a needed diversification within the Fixed Income & Credit space.
This solution provides a granular, defensive and unleveraged approach. It has delivered over 7 years of steady, unspectacular returns of GBP 6.5/7.5 % per annum net. The performance is helped by the ability to source own loans rather than buy in portfolios. This gives a continuity of loan quality and promotes low defaults (around 1%). One unusual aspect of this solution; it offers some liquidity, not often seen in funds of this type of return .
Brexit has been a concern but is likely to be of beneficial for the strategy. A lower GBP drives the demand for more home grown food, and increasing electricity prices to power dependent farmers encouraging energy efficient power plants such as Bio gas . This has the additional benefit of been seen as a strong socially responsible investment.
More than 65 Swiss wealth managers, pension funds and family offices have invested in this solution.
Get in touch with us and ask for more details. We are very happy if this solution adds value to your wealth.
The situation gets tricky, more and more banks stop subsidizing and charge their clients for holding cash on the account.
Thresholds get reduced, new client segments such as private clients get confronted with the charge. And reading between the lines, further interest rate steps by SNB can not be excluded anymore.
There are solutions to soften the issue, and this without extending the rist pattern substantially.
Many investors have increased their cash portion due to lack of confidence towards many market levels and due to historic low yields on Bonds, many High grade segment even yielding negatively.
The Fixed Income markets have seen a major change since 2008. It needs new and adopted strategies to generate a mostly positive contribution.
Real specialists do have the skills and the time to monitor the markets actively, act and optimise timely if needed.
What to do?
Get in touch with us and listen to our solutions, maybe it fits for you too.
We worked out a solution which has to fulfill the following needs and requests:
- broadly diversified portfolio with good quality level
- no currency risks and the least possible interest rate change risk
- daily liquidity
- small denominations (to enable smaller clients to participate too)
- aim to provide mostly positive returns
Solution with many advantages
The above mentioned needs all are taken care, which makes this cash-alternative already better than cash. On top, we
- can provide a AAA counterparty risk
- don’t allow leverage in the product
- offer competitively (no stamp duty, low management fees)
- monitor the solution and the underlying elements actively and react if needed
- help you smoothen the threat of negative interest rate charges
- achieve a professional result by enaging with proven specialists
- help increasing efficiency of buyers/investors/advisers as it is time consuming and challenging to stay always on top of the market moves
Wealth preservation or retaining purchase power mostly is the expectation towards a Fixed Income portfolio. And this is what our solution is aiming for too. It is a conservatively managed strategy, working with volatilities which are lower than the comparisons. This solution of course is exposed to market movements and interest rated moves as other solutions, however we aim to immunise the impact by choosing complementary strategies.
Driving and managing a Fixed Income portfolio well has become more challenging due to low interest rates, higher volatility and lower liquidity. Hence to engage with proven specialists and insource their skills to manage market liquidity and the risks pays off.
Contact us by phone or mail. We look forward to be in touch with you.
Please allow me to comment on the news from Berne. I put it in connection with the Cape Fixed Income Fund.
Good things have happened within the Swiss CoCo space recently (you might know the Cape Fixed Income Fund is holding some low trigger Swiss AT1/Tier2 on good Swiss Bank names).
According to the latest FINMA language, low trigger Tier 2 CoCos will be grandfathered until the earliest its first call date and Dec 31st, 2019 but not be eligible for capital purposes thereafter.
After these dates, the bonds will count as ‘normal’ subordinated debt and not capital anymore. This creates a strong incentive for the banks to call these papers as they are simply too expensive as debt instruments without capital accountability. Hence, we expect a very high probability of these papers getting called at the first possibility thus giving the investor a clear expectation as to when expect his investment back. Essentially, this converts this segment of the asset class into a bullet-like maturity structure. Current spreads of around 500 bps within the AT1 and 350 within the Tier 2 space offer great value at this stage and we expect these papers to tighten more over time as the duration shortens towards the call date.
We wish you a (continued) good run with your investments and look forward to your feedbacks or questions you might have. Please don’t hesitate and get in touch with us by phone or mail.
Thank you in advance for your trust.
The market sees (too) many products. We have done a comparison of solutions with similar risk pattern. The result you can see in the graph below.
It demonstrates the fact, titles like ‘Absolute Return’, ‘Total Return’ or ‘Unconstrained’ do not implicitly mean to end up with a positive. Choosing the right approach is a key element to finally enjoy a solid performance.
It is time consuming and demanding to get and understand the details of the strategies and their impacts on the solutions.
We do believe in the added value having a specialist at hands who can spend the time and effort to check the solutions more granular.
Solid & focussed work combined with advanced infrastructure
Running a so called ‘Carry-philosophy’, this Fund has never been looking for exposure to interest and currency risks. In fact, they do avoid this kind of risk on purpose. Screening the whole universe of Credit- & Fixed Income products daily, they carefully choose solid borrowers for the Fund. Target return is to provide Libor +250 on a long run and with this, fulfill the main mission of wealth preservation and even contribute to the overall performance. However, it is not about maximising performance, but achieve target return with the most solid portfolio possible.
When aiming for saving purchase power parity and preserve the Wealth, it is important to limit negative surprises wherever possible.
One harsh example was occurring in January 2015, when the exchange rate EUR-CHF was lifted. The result was a real hit in the performance of many Fixed Income Funds, still working up from their lows in the performance.
On such low levels of interest rates, currency risks almost always are the dominant risk factor when markets move. Hence these products might be better looked as Currency Funds with securities and positive carry. The most important factor is, the investor really knows to detail what risks are embedded in his holdings. The approach and the risks associated with it are key.