Fallen Angels, coins and Eurobonds: what millionaires invest in during a pandemic

US, WASHINGTON (ORDO NEWS) — Wealthy customers were not shocked for a long time by the March fall in markets and almost immediately switched to active investments, Forbes told private banking banking departments. The favorites are investments in Eurobonds, American stocks, there is a demand for gold miners’ shares and coins, they are advised by banks to “look closely” at silver.

The crisis of March 2020 showed that wealthy private banking customers (according to Frank RG, the private banking investment portfolio in banks is 2.6 trillion rubles) are not just tolerant of market volatility – the drop in exchanges has aroused their risk appetite.

For example, in March, only in March for Private Banking customers recorded an increase in the investment portfolio by more than 100 billion rubles, the head of VTB Private Banking Dmitry Breytenbach said. And at Sberbank Private Banking in mid-March, at the time of the most acute phase of market decline, they saw an increase in customer demand for risky instruments, including non-investment stocks and bonds, customers were waiting for a rebound for the possibility of obtaining short-term income, says Sberbank Private Banking CEO Evgenia Tyurikova.

Demand for Eurobonds

What did wealthy clients invest in? Private banking executives surveyed by Forbes noted their demand for Eurobonds.

“This is explained by the past correction, and unprecedented fiscal and monetary measures, the actual zeroing of dollar rates,” says Dmitry Breytenbach.

The main strategy of clients is the formation of a portfolio of Eurobonds both independently and with the help of investment consultants, he adds. Debt securities with a credit rating of BBB and above, as well as a number of quality securities with a rating of BB are in demand. Clients are attracted by their profitability – 3-5% per annum in dollars – against the background of a general reduction in rates on dollar deposits.

“The focus is now on Eurobonds with a rating from BB- to A with an understandable level of credit risk, as well as a bet on fallen angels – bonds that have fallen strongly in price in the wake of a panic, but can quickly recover. True, we recommend that customers invest no more than 5% of the portfolio in such securities, “adds Victoria Denisova, Head of Otkritie Private Banking.

A-Club’s clients (private banking at Alfa Bank) had a “fairly intense demand” for short sovereign issues of Eurobonds, but the window of opportunity in them closed quickly enough, Nazarova says. “High yield bonds in emerging markets are of particular interest, but only with high credit quality,” she said.

Demand has increased, but it cannot be called increased, said Yevgenia Tyurikova. “We draw attention to issuers with an investment rating with a maturity of up to 5 years, since these bonds against the background of monetary incentives and low rates will recover faster in price. And the current yield is attractive – from 3.5 to 5.5% per annum and higher in dollars,” she said.

Gold and silver

Sberbank Private Banking recorded an increase in demand for shares of gold mining companies and index exchange funds for both gold itself and shares, Tyurikova said. There is a demand for transactions with Bank of Russia investment coins and precious metal bullion, “but there aren’t more of them than in the same periods of the past years,” Tyurikova says.

VTB has noticed a growing interest in depersonalized metal accounts in gold, ETFs with exposure to gold and shares of gold mining companies. The bank, in the wake of the demand for gold, even launched an investment bond tied to the value of gold, adds Breitenbacher.

Demand for physical gold is not seen at Sberbank Private Banking, VTB, or Discovery. VAT on buying or withdrawing physical gold from an account makes such an investment irrational, says Breitenbacher. “As an investment, physical gold is not suitable for every client, as it requires storage costs. Typically, physical gold is bought by customers who fear the risks of the financial system. But this time, the level of panic among customers is much lower, “said Victoria Denisova, head of Otkritie Private Banking.

Breitenbacher and Nazarova are advised to pay attention to investments in silver. It is traded at a discount to gold and has the protective properties of a precious metal. “Gold is already being traded quite high, and as a diversification it will be possible to see an increase in customer interest in silver, whose price-to-gold ratio is now at historic lows,” Breitenbacher added. “Silver is actively used in industry, which can lead to an increase in its value as business activity resumes. In addition, silver, unlike gold, has no signs of overproduction,” Nazarova said.

With all of this in mind, you can find more information about investing in gold and precious metals by taking a look at some of the interesting resources on websites such as gsiexchange.com.

Where to go next

Now Sberbank Private Banking sees a drop in demand for broad index strategies – this is a passive strategy when the portfolio is formed similar to the index.

“The main vector is a reduction in investments in protective instruments that did their job in the second half of March, and an increase in investments in more risky and potentially more profitable instruments,” said Alina Nazarova.

At the A-club, customers exit “protective” US Treasury bonds and buy Eurobonds, stocks, ETFs, structural products, “which now offer a yield of 20-30% per annum in foreign currency,” she adds. But the main interest, she said, is concentrated in the stock market, including the United States. The US S&P 500 index fell by almost a third in March.

Citi customers are interested in buying shares of international companies from the high technology and healthcare sectors, as well as everyday goods, in addition, customers buy funds of companies with high dividend yield. The shock of a rapid market decline in March is passing and risk appetite is growing in investors, adds Mikhail Znamensky, head of Citibank’s financial asset management.

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