For professional investors only
A material portion of global debt was already in negative yielding territory before the pandemic hit, due to record low interest rates and little yield from traditional fixed income asset classes. And now investors are facing the added downside of market crisis.
One interesting solution may be to look deeper into the corporate balance sheet, where investors could potentially gain yield without compromising the overall portfolio volatility. Additional Tier 1 capital bonds (AT1s) and other hybrid securities have emerged in the fixed income market over the last couple decades and offer investors high yields while maintaining low interest rate risk.
The most interesting and important aspect of both AT1s and hybrid securities is that they are subordinate to senior debt and offer higher yields than conventional investment grade and, generally, high yield bonds. This subordination in the capital structure is the main driver of higher yields, not issuer risk. In fact, most corporates that issue these types of bonds have investment grade ratings which means these securities have also high credit quality.
For investors looking for innovative income opportunities, AT1s and hybrid securities could offer additional yield and attractive risk/reward characteristics. These growing asset classes can now be accessed through ETFs, which provide investors added benefits of liquidity and transparency.
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Investment risks
Investment strategies involve numerous risks. Investors should note that the price of your investment may go down as well as up. As a result you may not get back the amount of capital you invest.
Debt instruments are exposed to credit risk which is the ability of the borrower to repay the interest and capital on the redemption date.
Investments in debt instruments which are of lower credit quality may result in large fluctuations in value.
Changes in interest rates will result in fluctuations in value.
Important information
This document contains information that is for discussion purposes only, and is intended only for professional investors in Ireland and the UK. Marketing materials may only be distributed in other jurisdictions in compliance with private placement rules and local regulations.
Data as at 29th September 2020 unless otherwise stated.
This document is marketing material and is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.
This document should not be considered financial advice. Persons interested in acquiring the product should inform themselves as to (i) the legal requirements in the countries of their nationality, residence, ordinary residence or domicile; (ii) any foreign exchange controls and (iii) any relevant tax consequences.
UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them.
This document has been communicated by Invesco Investment Management Limited, Central Quay, Riverside IV, Sir John Rogerson’s Quay, Dublin 2, Ireland.
EMEA7593/2020
