Invest in Swiss mortgages for better returns than Swiss bonds, regardless of interest rate levels.
Mortgages offer an attractive incremental yield compared to the SBI AAA-BBB Index. For this reason and taking into account the increased diversification of portfolios, this asset class is interesting for pension funds, in addition to the share of Swiss bonds.
Better return prospects
Mortgage loans offer higher return prospects than traditional Swiss bond indices. Whatever the level of interest rates, their yield is higher, compared to the SBI AAA-BBB bond index. The margin of mortgage loans varies depending on the market phases. On average, this margin – the excess yield – amounts to around 73 basis points (0.73%). To calculate the effective additional return, the difference in costs between the mortgage loans and the bond fund is deducted from the gross margin. We then obtain a net margin of around 53 basis points per year.
What is the effect on its portfolio when a pension fund uses mortgages instead of the SBI AAA-BBB index?
The SBI AAA-BBB index is a mixed bond index which consists of approximately 35% government and public bonds, approximately 28% corporate bonds, approximately 34% mortgage bonds and approximately 3% from other loans. By replacing this index with mortgage loans, investors reduce the share of government and corporate bonds in their portfolio in favor of bonds guaranteed by letters of pledge (mortgage loans). Unlike traditional letters of pledge, it is possible to take advantage of the margin of the lending organization in the case of mortgage loans. Investors thus benefit from a systematic additional return. Furthermore, investments in mortgage loans benefit from an additional guarantee compared to government and corporate loans, thanks to the real estate financed.
What should you also pay attention to when investing in mortgages?
As with all investments, diversification and security are important factors. Within the AXA Mortgage Insurance Switzerland investment foundation, investors invest in a broadly diversified mortgage portfolio comprising more than 1,500 mortgage loans.
In addition, care must be taken to ensure that the liquidity rate in the product used is not too high and attention must be paid to the types of buildings financed, their location and their use. Residential buildings are therefore considered less risky than commercial buildings. Another criterion to take into consideration: advance rates, which are essential to determine the probability of default of debtors and the resulting risk.
Legal notices: the information communicated here by AXA Switzerland is provided for advertising purposes and is aimed at professional investors in accordance with Swiss law. They constitute neither an offer nor an invitation to buy or sell investment instruments. The opinions expressed in this document reflect the assessment of AXA Switzerland at the time of preparation of this same document. This assessment may be modified at any time without notice. AXA Switzerland disclaims any liability or guarantee for the accuracy and completeness of the information provided.
