PROTECT THE STABILITY OF THE FINANCIAL SYSTEM
The stability of the financial system is based on trust among the operators who participate in it: savers, investors, banks, other intermediaries and market infrastructure managers.
The solidity of the intermediaries – as subjects who collect, invest and manage savings and carry out other financial activities – is an essential prerequisite: preserving this solidity is the aim of the supervisory activity on banks and other subjects attributed to the Bank of Italy.
Finally, the solidity of the savings accumulated by households and economic operators and the effective functioning of the financial system in channeling resources towards productive investments are necessary elements for collective well-being and for economic growth.
The recent financial crisis has highlighted both the speed and violence with which problems in the financial sector can spread, especially within a Monetary Union, and the direct repercussions on investors. The current European regulation has therefore forced credit institutions to issue new instruments to comply with the established capital requirements to help set and maintain confidence in the European banking sector over time and strengthen the resilience of banks.
This opens up new and interesting investment opportunities among alternative debt instruments, such as subordinated bonds.
KAIROS' OFFERING
KIS Financial Income is a bond Fund that invests with a directional strategy in the mainly European financial market, with a focus on instruments issued by financial institutions, in particular on subordinated bonds. It is a solution that falls within the fixed income universe and that makes the analysis of the capital structure of the issuers and the macroeconomic context its main characteristics.
The management style is in fact of the top-down type supported by a careful bottom-up analysis of the issuer and the issue, that comply with ESG criteria. The minimum investment limit of 50% of the sub-fund’s assets in securities issued by financial institutions offers the manager that margin of flexibility with which to deal with any critical issues related to the sector; a maximum of 10% of the assets may be invested in shares.
The objective of the product is to offer capital appreciation in the medium to long term. Selection is made from a large basket of debt securities within a universe of issuers. The investable universe is large both in terms of the number of issuers and issues.
It is an interesting bond portfolio diversification tool that allows the investor to access a segment of the bond world usually reserved for professional investors.
PORTFOLIO CONSTRUCTION
The investment universe is mainly represented by European financial subordinates (Additional Tier 1 and Lower Tier 2), a special category of bonds capable of offering interesting potential in terms of returns because they act as capital instruments.
Unlike more traditional corporate bonds, they tend to be highly volatile as issuer uncertainties increase. It is therefore an alternative to the more expensive placement of shares.
Subordinated bonds are distinguished according to the type of risk:
- Additional Tier 1 or COCO bonds (Contingent Convertible Capital Instruments) are instruments that participate in the absorption of a bank’s losses should capital ratios fall below pre-established levels. Furthermore, they can be converted into shares automatically by the Regulator;
- Lower Tier 2 represents the more traditional category. They also participate in loss absorption should the bank become insolvent.
Portfolio choices are made by the management team with ample leeway, also taking advantage of misalignments within the capital structure of financial issuers.
Portfolio construction includes:
Finally, the Fund may invest in options and futures in order to optimize portfolio exposure and improve the Sharpe ratio (The Sharpe ratio of a portfolio of securities, named in honor of the 1990 Nobel Prize in Economics William Sharpe, is a measure of portfolio performance).
The Fund is actively managed with full discretion over portfolio composition.
The Benchmark (70% ICE BofAML Euro Investment Grade Contingent Capital (COCE) + 30% ICE BofAML Euro Financial Subordinated & Lower Tier 2 (EBSL)) is used for performance comparison and performance fee calculation.
According to the SFDR Regulation on ESG funds, the Fund is classified as art. 8. Further information on sustainability aspects is available at the link https://www.kairospartners.com/esg-en/?lang=en and in the prospectus.
KIS Financial Income is aimed at investors with a medium-to-high risk tolerance, who can commit their capital for a period of 3 to 5 years and seek to meet defined investment objectives. They should have experience or an understanding of so-called risk capital products and be willing to tolerate significant capital losses (should they occur). Investment involves a risk component, and as a result, the originally invested capital may not be fully or partially recovered. Past performance is not indicative of future results. KIS Financial Income’s synthetic risk indicator is classified at level 3 out of 7. Comprehensive information regarding risks is available in the Prospectus and Key Information Document (KID).
THE MANAGEMENT TEAM
The management of KIS Bond Plus is entrusted to Rocco Bove who boasts many years of experience in the entire area of the capital of issuers, with strong specialization in the categories of high-yield corporate bonds.
We are signatories of the PRI, Principles for Responsible Investment, the United Nations initiative which contributes to the development of an increasingly sustainable global financial system.
We are signatories of the Carbond Disclosure Project (CDP), the international non-profit organization that intends to contribute to the construction of a sustainable economy for people and the planet.