Swiss fixed-income investors are in a difficult situation. The low interest rate environment is causing returns to melt away like snow in the spring sunshine. Positive returns on investment-grade bonds are hard to find. But there is a promising alternative.
Even bonds of junk-rated borrowers such as Ford Motor Credit (BB) and Petróleos Mexicanos (BB) are now trading at less than 1.5% yield to maturity in Swiss francs.
Investors focused on the Swiss market therefore often take refuge in real estate or yield-optimising structured products such as barrier reverse convertibles (BRCs). But even the latter are not an obvious solution at the moment due to the current highs in equities and the rather low volatility compared to last year.
Crowd lending offers a stable alternative. Thanks to peer-to-peer platforms, investors can invest directly in loans without a middleman. Switzerland’s leading platform lend.ch has been on the market since 2016 and has so far brokered more than CHF 120 million in loans (3,000+ projects) thanks to its 3,500 private and institutional investors on the platform.
(Graph 1: How peer-to-peer lending works)
The performance history speaks for itself, given that after defaults and fees, investors generally enjoy an annual return in Swiss francs of between 3% and 5% (see Graph 2), which outperforms the returns of the Swiss Bond Index many times over. Not surprisingly, the platform was also able to accelerate its growth significantly in 2020 despite the COVID-19 pandemic.
(Graph 2: LEND Personal Loans and SME indices compared to the Swiss Bond Index)
Institutional investors have increasingly recognised the appeal of loans as a direct asset class. In addition to institutional investment funds and family offices, Swiss pension funds are also active on the platform.
Because institutional investors generally require an investable vehicle (ISIN/valor), lend.ch has launched an actively managed certificate (AMC) in a collaboration with ISP Securities. The product invests in a broadly diversified loan portfolio of Swiss private individuals and SMEs and as a rule is tradable on a daily basis thanks to an integrated cash buffer.
Investors thus have the advantage of being able to delegate recurring investment decisions and also – thanks to the product’s tradability – of not always having to wait for the full repayment of individual loans in the portfolio in order to access liquidity.
Investment on a rolling basis
Via the RoboInvest function of the LEND platform, the liquidity available to the AMC is continuously invested in a broadly diversified portfolio of first-class Swiss debt loans on a rolling basis. ISP Group also contributes further to the liquidity of the AMC through a continuous secondary market.
*This is an investment idea, not an advice or a solicitation. Access to this information is forbidden to persons in any jurisdiction where the publication of or access to the ISP Group Website would result in a violation of any applicable law or regulation (by way of domicile, residence, nationality, investor status, or otherwise). Learn more at https://ispgroup.com/en/legal-disclaimer/
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