The benefits of corporate bonds to clients investment portfolio

Historically, corporate bonds have tended to offer lower volatility than the average equity fund, while returning a more attractive yield than sovereign bonds.* Ensuring there is some exposure to corporate bonds in your client’s portfolio, depending on your client’s individual situation, can be a prudent approach.

Zurich has recently enhanced our fund offering by adding two new corporate bond funds which already form part of the Prisma multi-asset fund range and are also available as standalone fund options. As the investment landscape evolves the benefits of active management could not be more evident. The addition of corporate bonds to our fund offering is a result of the flexibility and discretion that our active approach to investment allows.

Reasons to invest in corporate bonds with Zurich

1. By investing in investment grade credit only, risk is within defined parameters

Public ratings published by external credit rating agencies are used by Zurich Investments to determine our own internal rating for each individual exposure, supporting our investment decision making and risk management. Zurich’s corporate bond funds exclusively invest in investment grade exposures. In addition, credit ratings are continuously monitored to ensure that any deterioration is captured and can be acted upon.

2. Lower currency risk as the holdings are euro-denominated

Zurich’s corporate bond funds are fully Euro denominated which helps mitigate currency fund risk. However, this does not restrict the geographical diversification profile: the funds actively invest in bonds issued by global corporations through Euro denominated instruments. For example, a U.S. based firm which operates branches in Europe may decide to raise capital for that business by issuing a Euro denominated bond.

3. Higher exposure to debt issued by financial corporations than equities

Corporate bonds are issued by all types of corporations, and are segmented into major industry groups. Zurich’s corporate bond funds have diversified exposure across a range of sectors, including banking and other financial corporations, such as insurance or real estate firms. Most corporate bond benchmarks have an exposure of approximately 50% to financial issuers. This is a higher exposure than is typically available through investments in equities.

4. Responsibly managed

Zurich in Ireland participates in group-wide practices in relation to Responsible Investment. Environmental, social and governance (ESG) factors are a key input into the fundamental credit analysis and selection of each holding within our corporate bond funds. Developments in ESG ratings are frequently monitored by our dedicated Credit Analyst Team.

5. Actively managed by Zurich Investments

At Zurich, our Dublin based investment team have a strong track record in delivering long-term consistent fund performance and make investment decisions every day that they think will lead to better outcomes for your clients. As active investment managers, Zurich Investments take advantage of opportunities by utilising a disciplined and flexible approach, ready to react to shorter term fluctuations. Active management is supported and enhanced by fundamental credit and technical analysis, issuer selectivity and a proactive approach. Our integrated team-based investment process ensures our investment strategy is implemented quickly and effectively.

The addition of corporate bonds to Prisma multi-asset funds

Zurich’s flagship range of multi-asset funds, the Prisma range is built on Zurich Investments market leading multi-asset expertise. The five Prisma Funds target different risk profiles. Each of the Prisma Funds is diversified and can include equities, bonds, property, cash, and alternatives. Where the range already had exposure to sovereign bonds, recently the range has been further diversified with the addition of corporate bonds to the mix of asset classes.

Speaking about the addition of corporate bonds to our highly popular Prisma fund range, Helen Dodd, Senior Credit Portfolio Manager at Zurich says: “This has enhanced our offering by adding a further layer of diversification, access to a wider range of asset classes and an extra pickup from sovereign bonds”. Speaking of our current positioning with regards to corporate bonds, Helen goes on to say “Overall, we are constructive, but selective across investment grade corporate bonds. Dispersion in performance is likely, therefore fundamental credit analysis, issuer selectivity and an active management approach are key.”

For more information

Zurich’s Corporate Bond Funds are already available as part of the Prisma fund range. The Short-Term Corporate Bond Fund and Medium-Term Corporate Bond Fund are also available as standalone options across the Zurich suite of Pensions, Savings and Investment products.

You can find more information on corporate bonds by speaking to your Zurich Broker Consultant or visiting our fund section on zurichbroker.ie.

*Source: Zurich, September 2020