Money and Interest

Government Bonds Less Interest

When it comes to government bonds, on the other hand, the returns are less interesting. Mathias Bauer, head of Raiffeisen Capital Management: “Government bonds have long been classified as a safe haven for investment, but corporate papers are now preferable on risk grounds.” This is why Austria’s money experts in general are advising investors to alter their strategies. Franz Witt-Dorring, Head of UBS Austria: “Investors should not commit to any government bonds with a term longer than seven years, since such papers could come under pressure in the next 12 to 24 months.” Erste Bank expert Hollinger went on: “Investors should be reducing the average remaining term of their fixed-interest bonds held in security deposits. They should also consider shifting their fixed-interest securities into floaters.”

Private Banking Manager Ohswald: “Share funds which actively hedge the interest rate risk offer good opportunities. Investors should avoid funds which only display one index, however.”

This is why Ohswald is currently recommending that his well-heeled private banking clients invest in such items as the broadly-spread R2 Eurobond All Fonds, or the corporate share fund Euro Corporate Fonds. Vontobel Head Landesmann also finds corporate bonds a good way for aspiring investors to mix their money: “Thanks to the superior returns they offer compared to secure government bonds and the lively economic situation in the industrial sector, corporate securities are attractive.”

Creditworthiness also plays an important role, however, thanks to the returns that can be achieved. Bank Austria Private Banking Manager Danzmayr comments: “Those investing in corporate securities for the first time would be well-advised to go for securities of companies with a lower level of creditworthiness, since first-class credit ratings are already yielding lower returns than the government bonds of core Eurozone countries.” Erste Bank expert Hollinger also finds reasons to opt for securities with worse classifications: “Shares with ratings below the investment grade field show high liquidity. In addition to this, the low interest environment in the developed economies, better corporate data and falling rates of bankruptcy offer benefits.”

“Corporate papers are now preferable on riskgrounds”

The 10-year gold price in US dollars rose by around 420 percent. For Euro-investors, too, gold has been a good investment, yielding a return of some 250 percent. Despite the strong price increase, there is still room for it to rise further. UBS expert Witt-Dorring notes: “The gold price could rise to 1,650 dollars per ounce over the next year. For this forecast to come true, however, investor demand and demand for gold jewellery must continue to rise.

Purchases by central banks alone will not lead to higher prices.” To maintain a broad spread, gold should continue to have a place in investors’ portfolios. There are a number of different ways of buying into gold: you can buy physical gold, or invest in exchange traded funds which include gold. In addition to this, investors can buy gold shares. As Vontobel expert Landesmann puts it: “Gold plays the role of a buffer against risk during crisis situations. We are currently recommending to conservative investors that they put seven percent of their entire investment in gold and gold exchange traded funds. Since gold shares depend on the stock exchange trend, however, they don’t offer the same diversification benefit as physical gold.” RCM Head Bauer recommends that five percent of your money be kept in gold. Bauer: “If you want a broader spread, you should invest in gold and raw materials funds such as Raiffeisen Active Commodities.”

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