After the market's recent repricing, yields on corporate hybrid bonds1 have significantly improved, giving investors an alternative to longer-dated bonds and higher credit risk.
Now 10 years old, the corporate hybrid bond universe is still growing and diversifying. It is now as large as the EUR High Yield2 corporate debt market. We believe this hybrid bond segment now offers an attractive risk/return profile, acting as a genuine interface between low default risk on Investment Grade bonds3 and High Yield bond coupons.
Edmond de Rothschild SICAV Corporate Hybrid Bonds was launched at the end of 2021 and now has €116m4 under management. For more on the fund, watch the interview with its fund manager, Alexander Eventon.
MAIN POTENTIAL INVESTMENT RISKS
The fund is classify in category 4, in line with the nature of securities and geographical zones in the “objectives and investment policy” section of the key investor information document (KIID). The risks described below are not exhaustive: it is the responsibility of investors to analyse each investment’s risk and to come to their own opinion.
Risk of capital loss: The fund does not benefit from any guarantee or capital protection. There is a risk that investors will not get back the full amount of the capital originally invested. Investors should note that the performance target is provided for information purposes only; in no way does it constitute an obligation of results for the management company.
Credit risk: Credit risk is the risk that an issuer may default on its commitments. In the event of default, or a downgrading of the quality of issuers, the value of debt securities and money market instruments in which the fund invests will fall. In particular, the fund may be exposed, at a level up to 100% of its net assets, to high yield bonds that offer linked to the credit risk of companies whose risk of defaulting is not nil. In the event of a deterioration in the quality of corporate issuers, the value of these bonds will fall, resulting in a fall in the net asset value. The fund will also be invested in part in subordinate securities that are dated but are of indeterminate maturity, presenting a greater risk of fluctuation of their valuation than that of top grade bonds.
2 Credit risk linked to investment in speculative securities: The Sub-fund may invest in issues from companies rated as non-investment grade by a rating agency (rating below BBB- from Standard & Poor’s or equivalent) or those with an equivalent internal rating from the Management Company. These issues are known as speculative securities and present a higher risk of issuer default. This Sub-Fund should therefore be considered partly speculative and as being aimed specifically at investors who are aware of the risks inherent in investing in such securities. As a result, the use of high-yield securities (speculative securities with a higher risk of issuer default) may incur a greater risk of a fall in the net asset value.
Interest rate risk: This refers to the risk of a decline in the value of fixed income instruments arising from fluctuations in interest rates. It is measured in terms of modified duration. The net asset value of the fund could diminish significantly following increases (in the case of positive modified duration) or decreases (in the case of negative modified duration) in interest rates. The fund’s modified duration may fluctuate between 0 and 10.
1 Hybrid and subordinated securities risk: The Sub-fund may be exposed to hybrid or subordinated securities. Hybrid or subordinated debt is subject to specific risks of non-payment of coupons and loss of capital under certain circumstances. For non-financial bonds, hybrid debt is deeply subordinated debt, which implies a low recovery rate in the event of issuer default.
3 Investment Grade: Investable securities corresponding to bonds issued by borrowers rated between AAA and BBB- by Standard & Poor’s.
4 Assets under management as at 21/03/2022.
LEGAL DISCLAIMER
Edmond de Rothschild SICAV Corporate Hybrid Bonds is a sub-fund of Edmond de Rothschild SICAV, a mutual fund governed by French law, authorised by the AMF and authorised for marketing in Belgium, Switzerland, Germany, Spain, France, Luxembourg, Austria and Portugal.
March 2022.
This document is issued by Edmond de Rothschild Group. This document is non-binding and is for information purposes only. The reproduction or use of its content is strictly prohibited without the authorisation of Edmond de Rothschild Group. The information provided in this document shall not be construed as an offer or a solicitation to enter into a transaction in a jurisdiction in which said offer or solicitation would be illegal, or in which the person at the origin of this offer or solicitation is not authorised to act. This document does not constitute, nor shall it be interpreted as, investment, tax or legal advice or a recommendation to buy, sell or hold an investment. Edmond de Rothschild Group shall not be held liable for an investment or divestment decision taken on the basis of this information. The UCIs presented herein may not be authorised for marketing in your country of residence. If you are uncertain about your ability to subscribe to a UCI, we recommend that you speak to your advisor. The figures, comments, forecasts and other elements contained in this presentation reflect the views of Edmond de Rothschild Group concerning the markets and their development, based on the economic environment and information currently available. Every investment carries specific risks. Investors should ensure the suitability of the investment with respect to their personal circumstances, and when necessary seek independent advice. Furthermore, investors are advised to read the key investor information document (KIID) and/or any other document required by the local regulation that is provided before subscription and available on the website http://funds.edram. com or upon simple request free of charge.
« Edmond de Rothschild Asset Management » or « EdRAM » refers to the Asset Management division of the Edmond de Rothschild Group. In addition, it is the commercial name of the asset management entities of the Edmond de Rothschild Group.
GLOBAL DISTRIBUTOR AND MANAGEMENT COMPANY
EDMOND DE ROTHSCHILD ASSET MANAGEMENT (FRANCE)
7 rue du Faubourg Saint-Honoré / FR - 75401 Paris Cedex 08
ociété anonyme governed by an executive board and a supervisory board with capital of 11,033,769 euros
AMF Registration No. GP 04000015 - 332.652.536 R.C.S. Paris
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