Union Bancaire Privée : Combining a Defensive Approach with Upside Potential Through Convertible Bonds

GENEVA--()--The outlook for convertible bonds is highly favourable as more companies turn to them for their financing needs and as investors increasingly see them as a valid alternative to both equities and bonds.

Convertible bonds combine the defensive qualities of straight bonds with the upside potential of equities, which gives them an asymmetric risk/return profile. This characteristic is a considerable advantage in the long term, as it enables this asset class to deliver equity-like performances with significantly lower volatility. The convexity of the asset class thus represents its main advantage and the reason clients add convertible bonds to their portfolios, as they provide an excellent way of diversifying a portfolio.

Union Bancaire Privée, having been an early believer in the many opportunities offered by the asset class, has been a forerunner in managing convertible bonds in Europe,. The team has worked with a consistent approach to convertible bonds since 1999, basing its strategies on three key differentiating features that lie at the heart of its investment approach: an investment-grade bias, which strengthens the bond floor and reduces the overall credit risk; a focus on cheap options to maximise convexity; and discretionary delta management to quickly adapt the equity sensitivity, when needed.

The investment team is known for its long-term views, one of which is that they believe there is still strong value in Europe. The re-pricing movement that has been operating in the European convertible bond space, following the market dislocation in early 2012, is currently producing its positive effects in pushing European convertible bonds’ value upwards.

Through a set of distinctive convertible bond strategies primarily defined by clear equity sensitivity ranges, UBP provides an alternative to bonds and equities. The defensive strategy for example offers convertible bonds with low equity sensitivity as an alternative to bonds. The appealing long-term risk/return profile of the strategy, which places it in top-position in terms of size in Europe, is based on its positioning: by deliberately limiting the expected upside to equities it enables its holders to benefit from positive yields in a traditionally negative yield environment, strong asymmetry, as well as low volatility.

At the higher delta side of the convertible bond range, UBP’s dynamic European strategy has demonstrated its capacity to stand as a strong alternative to an investment in European equities. Its dynamic positioning – an equity sensitivity varying from 20% to 80% – combined with a pure bottom-up investment process focused on convexity have provided investors with an enhanced risk/return ratio over the long run, characterised by equity-like returns and contained volatility.

Fifteen years after the first strategy was launched by Jean-Edouard Reymond, the team of six manages about EUR 3.5 billion, making UBP one of the major players in the field. At the end of 2013, the dynamic European strategy had delivered a 15.3% gross performance, ranking in the 1st quartile of its peer group in terms of performance (on a 1- and 3-year basis).

The information and opinions contained herein were prepared by Union Bancaire Privée, UBP SA (hereinafter, “UBP”).
The information herein was obtained from various sources and is believed by UBP to be reliable but UBP makes no representation as to the accuracy or completeness of such information. Opinions, estimates and projections in this document constitute the current judgment of the author as of the date of this document and are subject to change without notice. UBP has no obligation to update, modify or amend this document.
This document is provided for information purposes only. It is not to be construed as an offer to buy or sell or solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. The financial instruments discussed in this document may not be suitable for all investors and these materials should not be regarded by recipients as a substitute for the exercise of their own judgment. Investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situation and their investment objectives. Investors should be aware that foreign exchange rates may have a negative effect on the price or value of, or the income derived from, an investment denominated in a foreign currency. Furthermore, past performance is not necessarily indicative of future results.
UBP may make a market in, or may, as principal or agent, buy or sell securities of the companies mentioned in this document or derivatives thereon. UBP may have a financial interest in the companies mentioned in this document, including a long or short position in their securities, and or options, futures or other derivative instruments based thereon.

About Union Bancaire Privée (UBP)
UBP is one of Switzerland’s leading private banks, and is among the best-capitalised, with a Tier I ratio of 29%. The Bank is specialised in the field of wealth management for both private and institutional clients. It is based in Geneva and employs about 1,350 people in some twenty locations worldwide; it held CHF 87.7 billion (USD 98.6 billion) in assets under management as at 31 December 2013.
www.ubp.com

Contacts

Union Bancaire Privée
Jérôme Koechlin, Tel.: +41 58 819 26 40
Head of Corporate Communications
e-mail: jko@ubp.ch
www.ubp.com

An asymmetrical payoff: Convertible Bonds ("CB") value Vs underlying equity price (Graphic: Business Wire)

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Contacts

Union Bancaire Privée
Jérôme Koechlin, Tel.: +41 58 819 26 40
Head of Corporate Communications
e-mail: jko@ubp.ch
www.ubp.com