Bull & Bear Certificates: More Ways to Act on Your Market View

A Bull & Bear certificate is an exchange-traded security that provides daily leveraged exposure to an underlying asset, such as a stock, an index, a commodity or a currency pair. The mechanics are straightforward: if you choose a Bull certificate with 5x leverage and the underlying asset rises 2 per cent during the day, your certificate rises 10 per cent. Conversely, if the asset falls 2 per cent, you lose 10 per cent accordingly. A Bear certificate follows the same logic but in reverse, allowing you to profit from a decline.

In other words, you can position yourself in either direction and choose the level of leverage that suits you. A Bear certificate also serves as an accessible alternative to short selling a stock, which can be cumbersome to execute through traditional means. With a certificate, you simply trade on the exchange as usual and gain direct exposure to a decline.

Bull & Bear certificates are suited to investors who have a clear market view and want to act on it. They can be used tactically around specific events, but also as a way to manage risk in an existing portfolio.

Vontobel's range includes certificates on Danish equities such as A.P. Møller-Mærsk, Novo Nordisk, Carlsberg and Danske Bank, as well as international indices, commodities and currency pairs. Leverage levels vary depending on the underlying asset. With a Bull certificate on Mærsk, for example, a muted price move becomes something more tangible. The idea is not to speculate blindly, but to scale up a conviction that is already well founded.

A less well-known use for Bull & Bear certificates is risk management. For example, image that you have a portfolio with significant exposure to the US market. If the dollar weakens against the euro, your returns will erode, even if your American stocks are performing well. In that scenario, a Bull certificate on EUR/USD could offset that currency risk in the short-term, without requiring you to sell any of your underlying positions. The same principle applies to other types of exposure: if you identify a specific risk in your portfolio, a Bear or Bull certificate can allow you to address it without altering your other holdings.

Bull & Bear certificates carry a higher risk than direct shareholdings. Leverage amplifies movements in both directions, and the daily reset means that performance over longer periods may differ from what you would expect. This product is not designed for long-term savings.

One way to understand leverage is to compare it with the property market. When you buy a home, you put down a deposit and borrow the rest. You gain or lose based on the full value of the property, not just the amount you have invested. If the property increases in value, you earn a high return on your equity. However, if the property value drops sharply, you could lose more than your deposit because the loan still needs to be repaid. With Bull & Bear certificates, however, the risk is limited to your initial you invest. You cannot lose more than your initial investment, and that is a key difference compared to traditional borrowing.

It is not uncommon for investors to allocate part of their portfolio to long-term holdings and another part to more short-term, active trading. Bull & Bear certificates belong in the active part. They are not a replacement for long-term savings, but rather a complement for those who have a considered view and want to act on it.

If you understand how the product works and know how much risk you are willing to take on, Bull & Bear certificates can provide additional ways to engage with the market. Explore Vontobel's range and discover the opportunities that fit your strategy.