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Swiss Bonds

Pictet AM's solution for cash

Insights: Pictet CH-Short Mid Term Bonds CHF - a viable solution for strategic cash

November 2018

Pictet CH-Short Mid Term Bonds CHF: a viable solution for strategic cash


Since the Swiss National Bank introduced negative interest rates in December 2014, short term investors have been searching for solutions to the capital deterioration effects induced by the current central bank policy.

We believe that for strategic cash allocation, the 1-3 years Swiss Bonds Index (SBI) AAA-BBB offers an excellent opportunity for diversification and minimization of capital loss associated with negative rates.

We propose the active fund Pictet CH–Short Mid Term Bonds in CHF managed against the 1-3 years SBI AAA-BBB index. The fund performed 0.27% in 2016, -0.01% in 2017 and -0.07% gross of fees YTD 2018 as of September 30, 2018. It has a 12 months projected return of 0.22% (gross of fees), including the relative performance target over the benchmark.

The fund represents a viable option for cash management, as we think that most probably the deposit rate will remain unchanged at -0.75% in the next 12 months.

It is a good alternative to bank deposit accounts and cash indices

Compared to a bank deposit, the Pictet CH-Short Mid Term Bonds CHF offers a higher return, a good diversification (197 companies as of September 30, 2018) and the avoidance of deposit counterparty risk.

The fund is also a good alternative to traditional cash indices. The cumulative performance over 3 years for the fund is 0.18% gross of fees, while a traditional cash index (Libor CHF 3M) generated a cumulative return of -2.60% gross of fees.

Price evolution over 3 years (2015 - 2018)
Source: Pictet Asset Management, as of 30.09.2018
In annualized terms over 3 years, the performance of the fund has been at 0.07%  gross of fees, compared to -0.94% for CHF deposit rate or -0.87% for the Libor CHF 3M, with only a slightly higher volatility.

Expected yearly return

In the event of unchanged short term rates for the next 12 months, which is the most probable scenario in our opinion, an investment in the Pictet CH-Short Mid Term Bonds will continue to outperform the traditional cash indices and the bank deposits.

Pictet ch-short mid term bonds chf
Source: Pictet Asset Management, as of 30.09.2018
In the event that a rate increase does occur, the sudden price effect will be offset over time by higher yield-to-maturity of the existing securities and future reinvestment in the portfolio. In a stable interest rates and credit spreads environment the total expected return of the fund (gross of fees) for the next 12 months is 0.22% as shown in the table below.

Key characteristics of the fund

The fund has an AUM of 958M CHF as of September 30, 2018, invests in short & medium term fixed income instruments and is the only fund in Switzerland focusing on the 1-3 years SBI AAA-BBB.
Pictet ch-Short mid term Bonds chf
Source: Pictet Asset Management, as of 30.09.2018