How we select bonds

How we select bonds

The personalized portfolios offered by Busnelli & Associati contain a large proportion of financial instruments from the bond market, which allow the generation of a constant and certain coupon flow. The firm offers investments both in individual bonds and in bond exchange-traded funds (ETFs).

As far as individual bonds are concerned, there is broad international diversification across geography, currency and sector. We generally prefer bonds listed on regulated markets. However, in some cases, we also operate with bonds listed on non-regulated markets (Over the Counter, OTC).

Busnelli & Associati uses a precise and detailed method for the selection of each single bond.

The first step is to understand the client’s needs, i.e. the degree of risk-return he is willing to accept, the way he will use the proceeds earned and the time frame of his investment.

For example, if the client only wishes to protect his capital from inflation and possible losses, Busnelli & Associati recommends opting for inflation-indexed bonds, issuers with a high credit rating (investment grade) and bonds with a short maturity and high liquidity. However, if the client wishes to obtain a higher yield, the portfolio will be largely composed of high yield bonds, Emerging Countries bonds, subordinated bank bonds and foreign currency bonds.

At the same time, if the client requires a constant coupon flow to enable him to pay off liabilities with a certain frequency, the portfolio in question will be composed of bonds with a coupon flow (usually annual or semi-annual) capable of ensuring periodic income. In contrast, if the objective is to pay liabilities on a one-off basis and on a specific date, such as paying a college tuition fee or buying a car, zero-coupon bonds may be more appropriate.

Once the client profile has been identified, individual bonds are identified following a detailed macroeconomic analysis, with particular focus on the monetary policies of Central Banks and a thorough analysis of the soundness of the issuer in question.

The monetary policies of the Central Banks play an essential role in determining the interest rates of the economy and consequently substantially influence the yield of the bond market. During a rising interest rate phase, bonds with a variable coupon rate and a low duration will be preferred, so as not to be overly exposed to price risk. Conversely, during a phase of falling interest rates, the portfolio consists essentially of fixed-rate bonds with a higher duration.

As far as the solidity of the issuer is concerned, Busnelli & Associati carries out an analysis of the issuer’s creditworthiness, known as credit analysis, in order to assess the ability of the company or government in question to repay the debt. As far as companies are concerned, we look at industry fundamentals, company profitability ratios, liquidity ratios, leverage ratios and efficiency ratios. As for the states we give an institutional assessment to their government, an economic assessment, a fiscal assessment, a monetary assessment and an international assessment.

The method developed by Busnelli & Associati guarantees the client to invest in bonds with the best risk-return ratio and with the knowledge that the proposed investments correspond to their financial objectives.

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