Bond: discount ETFs to bet on a rebound

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List of 30 ETFs to invest in: great buying opportunities in view of the rebound of the markets.

In the past two months, we have witnessed an exponential rise in the volatility of the financial markets that has reached levels that have not been seen since 2008. Obviously the reason is the crisis due to the Coronavirus pandemic. As always, the market is expected to rise: investing during a crisis means buying securities (shares, bonds) which are expected to grow after the high voltage period of the markets. Let’s see which types of ETFs are now the most interesting and why.

Bond: volatility at the top since 2008, big buy opportunities on ETFs

The downward violence that hit all the main asset classes was characterized by very high levels of illiquidity due to a cascade of forced sales by operators.

Situations of this type also create opportunities on the buyer side, as more complex instruments of a simple action or commodities are priced by market makers based on the possibility they have of hedging on these assets.

Therefore, these instruments are not always listed at fair value, but may present discount or premium situations. In particular, the mispricing between the structured product and the underlying assets that make it up is the higher the illiquid the underlying.

Marzotto Investment House analysts have made a selection of UCITS bond ETFs in euro which present interesting underestimations compared to their NAV, i.e. net asset value and which analysts think can be used to take advantage of a rebound in the bond market.

Basically, simplifying to the extreme, the ETF price is “discounted on the sum of the prices of the securities that make it up”.

Take advantage of mispricing between structured product and underlying assets

This mispricing can be used to rapidly diversify with a single operation, but also because it can be difficult for a retail investor to buy liquid bonds as most have a minimum size of 100,000 euros.

Finally, the mispricing buffer would allow the ETF benchmark to outperform in the event of a sustained rebound and at the same time act as a value buffer in the event of an adverse movement, thus offering the investor an asymmetric payoff in his favor.

In addition to the current premium / discount on the NAV, calculated considering a purchase on the offer, the analysts have also entered a number of standard deviations of the mispricing compared to the historical values.

If the #sigma value (on the far right of the table) is positive, it means that the discount on the NAV is lower than the historical average, while if negative it means that it is higher. ETFs with a large discount on the NAV, but also a #sigma lower than 0, with a preference for #sigma values lower than -1.5 times, should be preferred.

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