A number of investment experts recommend that even when compiling their investment portfolio, they should increase investments in corporate bonds of world-famous companies. The problem is that bonds of non-transparent companies are still appearing on the market with the promise of a very attractive appreciation.
There have been a lot of these offers in recent years. This is due to the fact that we have extremely low years of rates, very low yields of quality corporate bonds and yields of government bonds with short maturities were even questionable. At that moment, clients look for alternatives and the return of five percent is very attractive, explains Richard Siuda, only the board of directors and sales director of Conseq Investment Management.
According to him, unfortunately, many investors are not able to evaluate the credit quality of the issuer, ie the ability to repay the debt on the part of the company that borrows the issue of the pension.
Partners financial advisor David Kuera has the same opinion: A bond is a bond that becomes a piece of paper in the event of an issuer’s bankruptcy. In this case, the corporate bond does not guarantee the state, as I often hear. If you do not know or understand the company and its ethnicity, never buy its bonds.
If it turns out that the company is not able to meet its obligations, the loss is clearly borne by the investor. Martyrie will then be able to repay at least the volume, but even only in the better case, when in the bankruptcy of the company will have some assets at all.
Quality corporate bonds
The issuance of corporate bonds is a completely common practice at a time when it pays off for more than the bank. In the event that the company offers bonds on publicly traded stock exchanges, it must submit and gradually submit all information about its management. As a result, such companies do not promise super-attractive returns.
There is also a way of selling corporate bonds. It is no exception when investors are convinced of the suitability of corporate bonds of non-transparent companies by some advisors and intermediaries who do not look at the client’s interest in seeing their commissions.
Especially as soon as the performance of the economy deteriorates, it is clear that the current period, which will now take place, will certainly come out of recession. .
Bonds of non-transparent companies are usually offered to sellers outside the regulated investment intermediary. They can only offer bonds with a prospectus approved by the Czech National Bank (NB), which requires a certain quality of minimum preparation. Even so, according to experts, even the NB prospectus does not say anything about the credit quality of the bond issuer.
How to choose a corporate bond
The analysis of the risks associated with the purchase of a specific corporate bond is usually quite extensive. Therefore, only those who have such material should be able to buy such a bond and are able to evaluate it, or they are blaming someone who did it for it.
And even in this case, experts recommend investing in such bonds a small part of the investment portfolio, a maximum of 5% per issuer.
Another thing is that the average investor often can’t even buy a quality corporate bond, because one bond has a nominal value of even a million crowns or more, says Richard Siuda. According to him, in such a case of bonds, funds may be included, which also provide a basic orientation in the risk taken.