– OPINION –
Luxembourg, 15 August 2023 – In view of rising interest rates, interest-bearing securities seem attractive again. At the same time, the danger of recession has not been banished and the risk of investments in individual bonds is increasing. “It is better to invest in a whole bundle of bonds than in a single bond. For this reason, bond funds are increasingly suitable for a portfolio as a building block for the bond side”, says Carsten Gerlinger, Managing Director and Head of Asset Management at Moventum AM. “The associated diversification makes it possible to take advantage of the opportunities on the interest rate side with reduced risk.”
The risk with individual bonds increases in phases of an economic downturn. “In the same way, sector-specific and company-specific problems can lead to defaults or price losses”, says Gerlinger. Recently, this was exemplified by Credit Suisse, which was long considered a solid investment. “The rapid crash also took some of the institution’s bond classes with it”, says Gerlinger.
Quite fundamentally, difficulties of regions or sectors do not have to lead to default. “But they will contribute to a widening of spreads and thus burden prices”, says Gerlinger. Hence, the investment in an individual bond is always subject to the price change risk.
Funds offer significantly better opportunities here. “Their high diversification effect ensures that defaults of individual bonds or even price losses do not burden the entire portfolio share”, says Gerlinger. “Particularly, flexibly investing funds can also switch between segments and maturities.” For example, in anticipation of a recession, corporate bonds can be replaced by government bonds with a high credit rating, thus reducing the risk.
“Moreover, with investments in individual bonds, there is no diversification possible across maturities”, says Gerlinger. “If you hold on to a bond, you have to accept the price fluctuations.” Funds are much better positioned here and can control duration flexibly. “And it is particularly the duration control that is often a decisive factor for risk management”, says Gerlinger.
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As an independent financial service partner, Moventum S.C.A. has been providing a home for financial service providers such as advisors and asset managers as well as institutional clients from all over the world for more than 20 years. The digital “MoventumOffice” platform offers access to more than 10,000 funds, ETFs and other securities. In addition, it allows financial advisors to open securities accounts for their clients, to place trading orders and to use analysis, reporting and support tools. Institutional clients are able to outsource their entire fund trading with complementary services to Moventum as part of collective or individual custody account management. A variety of fund services are assumed for asset managers, ranging from registrar and transfer agent services to fund accounting, company administration and domiciliation services.
Moventum Asset Management S.A. (Moventum AM) is a wholly owned subsidiary of Moventum S.C.A. Since 2019 Moventum AM manages Moventum’s own funds of funds and individual mandates as part of its asset management portfolios.