There are 3 mains ways to invest in fixed income:

  • Direct bond purchase
  • Through Mutual Funds (M/F)
  • Through bond Exchange Traded Funds (ETF)

FIXED INCOME INVESTMENTS NOWDAYS

Interest rates in most developed countries are near zero or negative and the pandemic crisis has forced central banks to massively buy government bonds. Central banks have also stated that they will keep key interest rates at the same level for many years, even if inflation strikes higher in the future.

MAIN 10YEAR BOND PRICES

  • German: -0,57%
  • American: 0,85%
  • Japanese: 0,02%
  • Swiss: -0,55%
  • Portuguese: 0,02%
  • Greek: 0,63%

Source: Bloomberg (prices 1/12)

GREEK REALITY

  • Savings accounts: 0%
  • Time deposits: 0,1-0,2%
  • Cash management products: -0,5%
  • 3month Treasuries: -0,2%

Returns are now zero and investors are forced to search for other options to gain income.

Let us explain their choices further.

1. Direct bond purchase

This option requires exceptional knowledge and is aimed at high net worth investors since very high diversification is demanded in order to achieve proper dispersion and there are significant restrictions such as: number of issues in euro with a minimum amount of 100,000 euros, different tax regimes apply by category or country of bond and capital losses can reach 100% if the issuer defaults.

2. Through Mutual Funds (M/F)

Greek bond M/Fs

The Greek bond M/F market mainly identifies -based on the assets- the investment in bond products with investments in Greek government and corporate bonds. The vast majority of €2.91 billion in the category of these investments (source: Association of Institutional Investors) is directed to Greek government bonds and to 35 corporate bond issues, issued by 24 companies, only two of which have a high credit rating (Investment Grade).

If we subtract from the assets the Μ/F of Insurance Organizations that has the largest assets of up to €394 million, there are €2.51 billion left in the bond market of 104 M/Fs, ie only €24 million of assets per M/F.

The Greek corporate bond market is characterized by low issuance amounts and limited marketability, which has a significant effect on price determination.

None of these Mutual Funds distributes income to investors via dividends.

With 10year government bond yield at 0,65% and the basket of Greek corporate bonds below 3%, the remarkable yields of recent years can hardly be repeated, as the annual costs of bond M/Fs range between 1.2-1.5% and entry/ exit fee is at 1-1.5%.

Global bond M/Fs

There is much better access to the global bond market, with more M/Fs and higher diversification, several M/Fs offer the opportunity of dividend distribution to investors.

Disadvantage in the environment of zero interest rates internationally in this category
are expenses: they have higher entry fees of 1.2% -1.75% and their annual expenses (TER) are between 1.2-1.7%.

Also, many managers, either for commercial reasons, or due to their distribution regulation (annual adjustment) distribute an excessively higher dividend than the amount collected form the bonds they possess, thus giving part of the capital and reducing the long-term value of the initial capital of the investment.

Investment through Bond Exchange Traded Funds (ETF)

ETFs market is much more concentrated than Mutual Funds market, and this is how very low costs are achieved (TER between 0,03% and 0,50%), with very high total assets, high marketability and access to all bond categories.

In XSpot Wealth we use low cost investments, which are ETFs from world- class providers, so as to build highly diversified portfolios.

For our Secure+ and Conservative portfolios we use ETF from top providers, such as iShares, Vanguard and State Street.

According to their most recent updates:

  • Total assets €257,8 billion
  • Invest totally in 13.491 bonds
  • Average cost (Total Expense Ratio) of our ETF strategies is 0,13% in the Conservative portfolio and 0,17% in the Secure+
  • 100% High Credit Rating (Investment Grade)

Dividend yields, achieved this year, amount to:

PortfolioDividend yield
Secure+0,50%
Conservative1,08%

This article does not constitute and shall not be construed as a prospectus, advertisement, public offering, or placement of, nor a recommendation to buy, sell, hold or solicit, any investment, security, other financial instrument or other product or service. This document is for general information only and is not intended as investment advice or any other specific recommendation as to any particular course of action or inaction.