Education

Vontobel's investment certificates give the private investor the opportunity to invest in new trends and tendencies

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Vontobel Markets
09/08/20224 min read
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While investing in shares and index funds in particular, which are traded on the stock exchange around the world, has gradually developed into a popular sport in Denmark, there are many other financial products that are still largely unknown in Denmark. One of those that can add spice to your portfolio is a so-called investment certificate.

A classic rule of thumb for private investors has long been that one should refrain from investing in something one does not understand. Maybe that's why the certificate, which in English is called an ETN, short for Exchange Traded Note, has long lived in the shadow of other and more easy-to-understand financial products. Indeed, for most new investors who have free funds available or are trying to get a better return on their pension funds, it can be difficult to understand the mechanics behind a certificate, even though trading the paper is as simple as buying one. But first an explanation for beginners on what a certificate is.

A certificate is a security, ie a financial product, which is traded on an exchange in the same way as e.g. shares in listed companies, entire stock indices, commodities or other things, topics and values ​​you can invest in - and which is called the underlying asset.

As mentioned, a certificate in English is called an ETN, it stands for Exchange Traded Note and that means that the certificate is a listed security. This means that as a private investor you can buy and sell the certificate every day, when otherwise the stock exchanges are open at a price that can be seen at the broker who has the paper for sale. Vontobel issues the certificate and is also a “market maker”, which imeans that they make a purchase and a sale price available so that one as an investor can trade the certificate in the market through a broker.

While shares of a company in practice give you as an investor an ownership, a certificate is a kind of bond. This means that the certificate is a debt product, where in principle you do not own what you invest in, but in return make your money available to the issuer of the certificate, who in turn may own the so-called underlying asset.

As an investor, you buy the certificate at a price that then follows and develops based on the value of the so-called underlying asset. Or to put it another way: the value of the certificate is linked to and is affected by the value of the asset, ie the object or concept that the certificate follows. It can be e.g. a company, an entire stock index, gold or currency.

If your certificate follows the price of gold, then the value of the certificate increases when the gold price increases and vice versa.

Vontobel typically buys and owns the underlying asset to hedge its obligations under the certificate, eg by buying shares in one or more companies. Then, popularly speaking, the asset is cut into smaller pieces and put up for sale as a security sold by a broker in the market.

Certificates can spread the risk in your portfolio

Vontobel develops and sells several different types of certificates, including the so-called (Link to Bull & Bear certificates), but they all have one thing in common. They are securities where the price is derived from the value of what is invested in. It can be, for example, a specific company's share, an entire share index such as the Danish C25 index, a precious metal such as gold or a commodity such as oil. The value of the certificate at any given time will depend on the price of the underlying asset invested in.

Unlike, for example, investment associations, certificates are typically passive investments, which means that once the certificate has been put together and put up for sale in the market, it suits itself. However, there may be cases where Vontobel subsequently goes in and creates a balance in a basket of underlying assets under the individual certificates. It can e.g. happen if a single company becomes too large and dominant in the basket of underlying assets in individual indices. For you as a private investor, Vontobel's version of passive management means that there is less administration required, which makes certificates a relatively cheap financial product to invest in. Finally, the certificate is often composed of more components than one underlying asset and therefore they belong in the category called structured products.

 

Vontobel will under normal market conditions sell and buy its certificates at a price that is available and transparent to the market and which is derived from the price of the underlying asset. Exceptions may apply where the certificate is sold out or because of technical problems.

For you as a private investor, certificates can therefore have the following benefits:

  • Transparency: Both the purchase price and the selling price of the certificate and of the underlying asset from which the price of the certificate is triggered are known at all times. The difference between the purchase price and the sale price is the ”spread”.
  • Liquidity: As an investor, you can buy or sell whenever the stock exchange is open, because Vontobel, as the market maker in the certificates, sets a buy and a sell price to ensure that you can trade your certificate.
  • Availability: The price of the individual certificate is typically affordable to the smaller private investor as well. At the same time, it is optional how many certificates you want to buy.
  • Administration cost: Because the underlying asset is typically fixed and only in special cases is changed, most certificates are ”passive” investments, which typically means lower ongoing administration fees. Vontobel earns its money in the spread between the purchase price and the sale price.

Before investing you should also be aware of the risks:

As an investor, you must in turn be aware that you are buying the certificate issued by Vontobel, which means that the money is lost if Vontobel goes bankrupt. This is called issuer risk. Certificates are not subject to any deposit protection.

And you should remember that the value of the certificate can fall significantly below the purchase price due to changes in market factors, especially if the value of the underlying asset moves in the opposite direction of your market expectation. Product and possible financing costs (in leverage products) reduce the value of the certificate over time.

In addition, due to the leverage effect, there is an increased risk of loss (risk of total loss) with leverage products, e.g. Bull & Bear Certificates, Warrants and Mini Futures.

Here you can read about Vontobel.

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the trading products (securities) mentioned herein, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms. The base prospectus and final terms constitute the solely binding sales documents for the securities and are available under the product links. It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand. This information includes or relates to figures of past performance. Past performance is not a reliable indicator of future results.

This information is neither an investment advice nor an investment or investment strategy recommendation, but advertisement. The complete information on the securities, in particular the structure and risks associated with an investment, are described in the base prospectus, together with any supplements, as well as the final terms.

It is recommended that potential investors read these documents before making any investment decision. The documents and the key information document are published on the website of the issuer, Vontobel Financial Products GmbH, Bockenheimer Landstrasse 24, 60323 Frankfurt am Main, Germany, on prospectus.vontobel.com and are available from the issuer free of charge. The approval of the prospectus should not be understood as an endorsement of the securities. The securities are products that are not simple and may be difficult to understand.