Convertible bonds are unique financial instruments that combine elements of both fixed-income securities and equities. Since these instruments can offer unique payout profiles, they are often used for diversification within broad diversified portfolios. Convertible bonds are issued by companies as a way to raise capital and provide investors with regular interest payments while offering the potential to convert the bonds into a predetermined number of shares of the company’s stock. The conversion from the bond to stock happens at specific times during the bond’s lifetime and is usually at the discretion of the bondholder. This dual nature makes them attractive

When it comes to investing in equity funds, growth and value funds represent two distinct strategies that cater to different types of investors. Both approaches have unique characteristics and risk profiles, making it essential to understand their differences to select the right product for the specific investment goals of an investor.   What Are Growth Funds? Growth funds focus on investing in companies expected to grow at an above-average rate compared to the broader market. These companies typically reinvest their earnings into their businesses to fuel expansion rather than distributing their profits as dividends to investors. Growth funds often target

In today’s market environment with a wide range product offerings, even retail investors have an array of options to diversify their portfolios or to enhance their return profile. Two popular choices are themed and sector-based products. While both types of investment products aim to capture growth in specific areas of the overall market, their investment focus and approach differ significantly. Understanding these differences can help investors choose the right product to reach their financial goals. Sector-based products Sector-based products concentrate their investments on specific industries or sectors of the economy such as technology, healthcare, energy, or finance. These funds track

As recommended in any investment proposal, investors should read the fund prospectus and other legal documents before making an investment decision. By doing so, investors are finding more often than not a sentence which states that the fund may use modern portfolio management techniques to achieve its investment goals. Even as these techniques and the instruments are mentioned in more detail in the prospectus, most (retail) investors struggle to understand the effects of these complex techniques for the portfolio and its results. That said, here are some brief explanations of the most commonly used modern portfolio management techniques and their

Bond or fixed income investors talk a lot about yield curves, but what is a yield curve and how can it be used in portfolio management? Generally speaking, a yield curve is a graphical representation (as shown in graph 1) of the relationship between interest rates (or yields) and the maturity dates of debt securities, such as government bonds. It shows how much investors can expect to earn from bonds of varying durations, typically ranging from short-term (e.g., one month) to long-term (e.g., 30 years). The curve is usually plotted with time to maturity on the x-axis and yield on

Bond investors often talk about duration and maturity of bonds when evaluating a single bond or a bond portfolio. Generally speaking, duration and maturity are two key concepts in bond investing which refer to different aspects of a bond’s timeline and sensitivity to interest rate changes. With regard to this, it is worthwhile to look more closely at these two measures.   Duration The duration is a measure for the sensitivity of a bond (portfolio) to interest rate changes. It represents the weighted average time it takes for an investor to receive all the cash flows (interest payments and principal

In the fixed income world investors often talk about “the spread” as one possible driver of returns. But what is “the spread” and why does it exist? Generally speaking, the spread in interest rates which is also called “credit spread” refers to the difference between two interest rates, often between a benchmark rate (normally the interest rate of government bonds) and a specific interest rate on another type of bond (such as corporate bonds). For example, if a 10-year government bond has a 3% interest rate and a corporate bond of similar duration has a 5% interest rate, the spread

Within the current macroeconomic environment where central banks around globe have started to lower interest rates, bond funds and ETFs have become popular investment choices for all kinds of investors. However, their performance is influenced by a variety of risk and return factors that investors need to understand. The first to mention is obviously the interest rate risk. Every investor should bear in mind that bond prices and interest rates move inversely, meaning rising rates can lead to losses, while falling rates increase bond values. A measure to determine the degree of a bond fund’s sensitivity to interest rate changes

In short, cryptocurrencies such as Bitcoin or Ethereum are digital or virtual currencies that use cryptography for security and operate on decentralized networks. These networks are normally based on a digital ledger technology, the so-called blockchain. Unlike traditional currencies (fiat money) which are issued by governments, cryptocurrencies have so far been launched by corporations or people. They are typically decentralized and rely on peer-to-peer networks for transactions and their validation. This mechanism helps make them resistant to fraud, central control, or interference. Despite these protection mechanisms, investors have witnessed that not all cryptocurrencies were resistant against fraud in the past.

After a period of negative market sentiment about synthetic replication caused by the bankruptcy of Lehman Brothers, which was the starting point of the financial crisis in 2008, investors seem to have returned to this replication method. As a consequence, we see a higher launching activity of the ETF promoter in Europe when it comes to these kind of ETFs. Generally speaking, there are two ways how an ETF can replicate its underlying index. The first is the so-called physical replication, where the ETF holds the actual securities in its portfolio. The second is the so-called synthetic replication where the

The cost averaging effect is a fundamental principle in investing particularly associated with saving plans/saving schemes/individual investment plans. The cost averaging effect occurs when an investor consistently invests a fixed amount of money into mutual funds, exchange-traded funds (ETFs), or any other asset at regular intervals, regardless of the asset’s price at the time of purchase. The cost averaging effect can play a significant role in smoothing out the impact of market volatility over time. With regard to this, one needs to bear in mind that this effect gets smaller over time since the impact of the individual regular payment

Exchange-traded funds (ETFs) have become increasingly popular among both institutional and retail investors over the years due to their unique characteristics such as diversification, liquidity, and cost efficiency (To learn more about the product features of ETFs and the differences to mutual funds, please read the article: “What is the difference between mutual funds and ETFs”). While most traditional ETFs are passively managed, the rise of actively managed ETFs has added another layer of appeal, expanding the investment options available. These actively managed ETFs combine the structural advantages of ETFs with the potential for outperformance through active management (To learn