Pictet AM's solution for passive investing in CHF Bonds
July 2021
Marketing Material
Passive management
Focus on low risk and cost efficiency.
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Our objective is to replicate the performance of a reference index with a similar level of risk. An index is composed of different sectors, countries, maturities and ratings. We aim to replicate these characteristics by selecting a limited number of positions, using a ‘stratified sampling’ methodology. The originality of our approach is that we consider company selection as the main element of the benchmark replication. This enables us to maintain a very low tracking error, better control the specific risk of each issuer, minimize transaction costs and improve portfolio liquidity. This methodology has allowed us to reach historically a net performance in line with the benchmark.
Risk management The portfolios maintain a low risk deviation from the index in every volatility environment by adapting the small over-/ underweight of issuers, sectors, countries, rating classes according to volatility of the interest rates and credit market. Within a normal volatility environment, the deviation from index weight of specific company rarely exceeds -/+ 0.3%. We target full investment. Selection optimization
The bonds selection optimization is done on an issuer-by-issuer basis for every cash flow in the funds and each monthly index modification. There is no automated transaction list used for portfolio construction and rebalancing. By replicating the index focusing on single debt issuer, we automatically replicate all superior dimensions: sectors, maturity buckets, rating categories and countries. We thus achieve an overall exposure for each risk category that reflects the index as closely as possible. We do not use instruments that are not part of the index. We anticipate index changes for portfolio construction. In addition, we target better portfolio’s liquidity compared to the index by selecting bonds which offer a lower transaction cost for the same interest rates - and/or similar credit risk. Liquidity analysis is carried out with the help of an internally developed model which uses factors such as bid-ask price differences, issuer debt volume, bonds maturity and credit spreads.
Cost reduction
Costs reduction and control is crucial for passive management to track the performance of the index. We achieve this through: best execution, good access to primary market, crossing opportunities between funds executed at mid-price and a strong preference for bonds with a low bid-ask spread. Thanks to a careful attention to these details, we managed to reduce by about 50% of the average market bid-ask price cost, resulting in a solid net of fees track record. The other benefit of reducing the average bid-ask cost is that it lowers the subscription fee to enter the fund, thus minimizing the entry cost for investors. We do not execution with in-house investment banking and there are no commission costs.
This marketing material is issued by Pictet Asset Management (Europe) S.A.. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. The latest version of the fund‘s prospectus, Pre-Contractual Template (PCT) when applicable, Key Information Document (KID), annual and semi-annual reports must be read before investing. They are available free of charge in English on www.assetmanagement.pictet or in paper copy at Pictet Asset Management (Europe) S.A., 6B, rue du Fort Niedergruenewald, L-2226 Luxembourg, or at the office of the fund local agent, distributor or centralizing agent if any.
The KID is also available in the local language of each country where the compartment is registered. The prospectus, the PCT when applicable, and the annual and semi-annual reports may also be available in other languages, please refer to the website for other available languages. Only the latest version of these documents may be relied upon as the basis for investment decisions.
The summary of investor rights (in English and in the different languages of our website) is available here and at www.assetmanagement.pictet under the heading "Resources", at the bottom of the page.
The list of countries where the fund is registered can be obtained at all times from Pictet Asset Management (Europe) S.A., which may decide to terminate the arrangements made for the marketing of the fund or compartments of the fund in any given country.
The information and data presented in this document are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments or services.
Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. The management company has not taken any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.
The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested.
The investment guidelines are internal guidelines which are subject to change at any time and without any notice within the limits of the fund's prospectus.
The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. Reference to a specific security is not a recommendation to buy or sell that security. Effective allocations are subject to change and may have changed since the date of the marketing material.
Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming shares.
Any index data referenced herein remains the property of the Data Vendor. Data Vendor Disclaimers are available on assetmanagement.pictet in the “Resources” section of the footer.
This document is a marketing communication issued by Pictet Asset Management and is not in scope for any MiFID II/MiFIR requirements specifically related to investment research. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any products or services offered or distributed by Pictet Asset Management.
Pictet AM has not acquired any rights or license to reproduce the trademarks, logos or images set out in this document except that it holds the rights to use any entity of the Pictet group trademarks. For illustrative purposes only.
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