Rising risks with individual bonds

The risk with individual bonds increases in phases of an economic downturn. “In the same way, sector-specific and company-specific problems can lead to defaults or price losses”, says Gerlinger. Recently, this was exemplified by Credit Suisse, which was long considered a solid investment. “The rapid crash also took some of the institution’s bond classes with it”, says Gerlinger.

Quite fundamentally, difficulties of regions or sectors do not have to lead to default. “But they will contribute to a widening of spreads and thus burden prices”, says Gerlinger. Hence, the investment in an individual bond is always subject to the price change risk.

Funds offer significantly better opportunities here. “Their high diversification effect ensures that defaults of individual bonds or even price losses do not burden the entire portfolio share”, says Gerlinger. “Particularly, flexibly investing funds can also switch between segments and maturities.” For example, in anticipation of a recession, corporate bonds can be replaced by government bonds with a high credit rating, thus reducing the risk.

“Moreover, with investments in individual bonds, there is no diversification possible across maturities”, says Gerlinger. “If you hold on to a bond, you have to accept the price fluctuations.” Funds are much better positioned here and can control duration flexibly. “And it is particularly the duration control that is often a decisive factor for risk management”, says Gerlinger.

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