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Is it worth it? Opinions and Full Review

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Is it worth it?  Opinions and Full Review

Co-founder of Affari Miei

February 20, 2024

UniCredit recently announced the launch of a new bond – ISIN code IT0005583643 – aimed at the retail market, i.e. private savers. The offering began on February 19, probably the bank aims to collect in the same period in which there is a lot of talk about BTp Valore and in fact the title seems to wink at the same type of investors.

But what are the characteristics and yields of this new Unicredit bond? Is it worth investing or not? Are there any risks? Let’s find out together in this article in which, as usual, I will also provide my opinions.

This article talks about:

Characteristics of the Unicredit 2037 bond – IT0005583643

This issue, with a duration of 13 years, is characterized by its formula a mixed rateoffering investors the opportunity to benefit from both an initial fixed return and a variable rate thereafter.

The structure of the bond provides a fixed rate of 7.7% per year for the first three yearsafter which the rate will become variablelinked to the 3-month Euribor, with a minimum of 0% and a maximum of 7.7%, payable on an annual basis.

The certain yield, therefore, is 7.7% per year at the beginning and subsequently the trend will be in line with what the market offers: at the time of writing the 3-month Euribor marks 3.93% with the forecast of a decline between now and the end of the year.

Most likely, barring any sensational shocks, in three years the yield on this bond will be much lower than in the first three years and, not surprisingly, the range that Unicredit has given itself is between 0% and 7.7%: this means that it will never pay less than zero but will never go beyond the yield of the first three years.

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In the KID the issuer hypothesizes total performance scenarios which, in the long term, range between 1.2% in the extremely unfavorable scenario to a maximum of 5.5% in the most favorable scenario. This means that, if all goes well, this bond will yield 5.5% gross per year (4.07% net) with a peak in the first few years (7.7%) and a gradual decline in future years.

The minimum investment for this bond is 10.000 euro which will correspond to the issue value (at par): the redemption value at maturity is guaranteed at 100% of the nominal value.

We remind you that corporate bonds do not benefit from preferential taxation: financial income, therefore, is taxed at 26%.

Let’s take an example. Suppose we invest €10,000 and obtain a €770 annual return (this is what is expected for the first 3 years): our net return will be €569.80, equal to 5.69%.

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The bond is exposed to the issuer’s credit risk, as is common for products of this type. Reading the KID shows a risk level classified as 3 out of 7.

Objectively, it is difficult to hypothesize a default of such a large bank but it is not at all impossible and unlikely: we recall the very close SVB events and Credit Suisse in 2023.

Early disinvestment

You can dispose of the investment before maturity by paying an exit penalty calculated as follows:

In the first year you receive the capital without interest; In the years following the first the cost is €200.

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Is it worth investing? My opinions

This product fits into a context in which investors, despite the decline in interest ratesare looking for solutions capable of offering capital protection and at the same time an adequate return to combat inflation.

The minimum denomination of 10 thousand euros is less affordable than that used for BTPs: the bank probably wants to turn to more well-equipped investors.

The first reflection starts from here: it probably makes no sense to consider such a product if our assets are less than half a million euros. I say this by doing a banal mathematical operation: 10 thousand euros would represent 2% of an asset of this type, 1% of an asset worth 1 million.

Exposure to more than 2% on a single security is generally not advisable also because, in all likelihood, an asset of a certain importance should already have a fair amount of diversification made up of funds, ETFs or individual shares or bonds which, in some way, already incorporate the category in which the Unicredit bond must be registered: corporate bonds.

A corporate bond component should be part of any well-diversified portfolio and often, for both tax and practical reasons, may be wiser buy ETFs or funds that buy these securities “wholesale” and in large quantities.

Let’s then consider one thing: this bond, according to the same performance scenarios that emerge from the KID and that we talked about before, will yield 4.07% net if brought to maturity (5.5% gross). We are faced with an absolutely “normal” return when compared to the corporate bond market, nothing “special” such that it would be wise to expose ourselves directly and in large quantities to understand each other.

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A title like this could certainly be useful to anyone looking for one immediate income from one’s own capital: however, I would always evaluate the exposure on the individual security in order to avoid excessive concentration.

This is all about the Unicredit bond, I hope this article has been useful to you.

For further information I recommend you start your journey on Affari Miei from the following articles:

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