Page 36 - ASSET MANAGER 11 (EN)

36 • CASHARE
WHERE THE INTEREST RATES STILL RISE
The current low interest rate phase seems to be becoming the new normal. In order to achieve income from interest, one often has to resort to exotic and risky investments, which is not possible or acceptable for all investors.
Author: Michael Borter, CEO, Cashare AG
Investing in Swiss loans to private individuals and SMEs offers attractive opportunities in Swiss francs to achieve renowned yields combined with diversifica- tion. All investor groups can easily invest in loans via crowd-lending platforms.
Ongoing low interest rate environment
For ten years, key interest rates in Switzerland have risen by 0% or even lower. This situation could continue, as the example of Japan shows, where a low interest rate environ- ment has persisted for over 20 years. And there is no end in sight.
Development of key interest rates
the current interest rate environment. If you cannot or do not want to expose yourself to a foreign currency risk or an increased risk of default by companies or states, "safe" investment in Swiss francs is guaranteed to suffer, with- out or even with negative returns. This can affect pension funds, for example, with too low coverage or even private pensions.
Loss of a source of diversification
A frequently ignored effect of the current interest rate envi- ronment is the loss of an entire asset class as a source of di- versification. The lack of income in fixed income investments virtually destroys their contribution to the construction of a diversified portfolio. In contrast to other investments, invest- ments with interest are characterized by a steady income, which can compensate for the volatility of other investments. This is all the more important as a large number of private and institutional portfolios are well balanced.
Chance Crowd-lending
Crowd-lending – also known as peer-to-peer lending or marketplace lending – brings borrowers and lenders togeth- er on an Internet platform. This allows investors to invest directly in loans to private individuals and SMEs. These loans have different maturities and are offered as secured or unsecured loans. After the credit check, the crowd lending platform gives each loan a specific rating and interest rate.
For mediation and other services, the platform charges a fee. By bringing borrowers and lenders together, interest rates are generally more interesting than traditional lending offers. Investors can currently benefit from interest rates between 3.9% and 9.9%. Since the repaid installments cause a current cash drag, active management over re- investments is necessary to achieve the maximum return, including the compound interest effect.
4% 3% 2% 1% 0%
-1%
2007 2009 2011
Switzerland
2013 2015
Euro Zone*
2017 2019
Japan
*Deposit Rate
The consequences for investors are well known. After fees, interest rate products often have a negative return. Banks are increasingly being forced to pass some or all of the neg- ative interest charged on them to their account holders. For- merly normal interest rates of 2 %, 3 % or even 4 % are only achievable today with the assumption of increased risks.
Careful investors as prisoners
Many investors cannot or do not want to take increased risks. This group – private or institutional – is imprisoned in
Source: Raiffeisen Switzerland CIO Office (data from Bloomberg)