Private investors buying bonds issued by medium-sized companies make their own investing decisions. This was one of the core findings of the latest study by Boerse Stuttgart, which was conducted jointly with audit and consulting company Deloitte and Münster University of Applied Sciences. The study shows that the majority of participants have many years of financial market experience. Both private and institutional investors buy bonds issued by medium-sized companies to diversify their portfolios.
The study profiles private investors who are familiar with bonds of medium-sized enterprises as an asset class. Of the persons surveyed, 58 percent have these debt instruments in their portfolios. Just over two-thirds, at 68 percent, have more than 10 years' capital market experience, and a further 17 percent have been active in the market for between five and ten years. Investors not availing of advice account for 78 percent of those surveyed. These investors obtain information about securities from the Internet and from specialist media, and make their own decisions on their portfolios. When choosing a financial instrument, investors take into account bond features as well as the issuing company’s characteristics and the composition of their portfolios. Jochen Wentzler, Partner in Corporate Finance at Deloitte, explained: “In addition to the issuer’s credit rating, the investors surveyed consider the decisive criteria for selection to be financial strength – in other words, the issuer’s profitability and equity base –, the business model and transparency in relation to the appropriation of the issue proceeds.”
Bonds issued by medium-sized companies are bought primarily for their contribution to portfolio returns. Investors rate the portfolio perspective, and thus the contribution to risk diversification, as ‘important’. Regularity of income also plays an important role. At 78 percent, the great majority of those surveyed also stress the importance of the tradeability of medium-sized company bonds on the secondary market, with institutional investors paying more attention to liquidity than private investors. Participants in the study also understand the risks, as the rating for security of the investment class is considerably lower. In the market for bonds of medium-sized companies, the main risk is perceived to be that of issuer default. This applies equally for investors who have already invested in these bonds and those who have never invested in them.
Greater opportunities and higher risks
Those surveyed are apparently conscious of taking default and price risks. The majority of the private investors surveyed judge the opportunities and risks associated with bonds issued by medium-sized companies to be higher than those of blue-chip equities. Half of them describe their own risk profile as ‘balanced to opportunity-oriented’. Only two percent rate themselves as "totally conservative”. Sabine Traub, Head of the Primary Market Group at Boerse Stuttgart, said: “The new study is the first to provide insight into investor behaviour focused on the relatively new asset class of bonds issued by medium-sized companies. The results confirm our previous finding that medium-sized company bonds are bought mainly by investors with capital markets experience.”
Use of information sources for investment decisions
Only 18 percent of the private investors surveyed take any advice in relation to their investments. The majority find information for themselves before making their investment. Obtaining information is therefore an important task for them. Professor Heinz-Gerd Bordemann of Münster University of Applied Sciences explained: “Private investors need reliable and up-to-date sources of information on the Internet. All issuers and service providers interested in bonds of medium-sized companies should consider making this information available. Private investors use an average of 4.6 sources. The most frequently used sources were online information provided by stock exchanges, followed by the relevant issuing prospectus and rating reports, all of which were used by more than two-thirds of those surveyed. Approximately half of the investors participating obtained further details from the issuing company, as well as from research reports and the relevant factsheet or product information sheet required by the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG).
The full study is available (in German) at