Cocos provide access to an asset class with improving prospects and policymaker support, yet with a highly attractive yield. We believe it is hard to find risk-adjusted returns that look quite so compelling anywhere else.
- With yields collapsing, deficits growing and the outlook uncertain, finding assets that will benefit, rather than suffer, from the current policy response, is a growing problem.
- We believe bank-issued coco bonds address these macro challenges and should increasingly be finding themselves on the radar of pension-fund allocators.
- Following a decade of reform, the European banking system has entered the current crisis from a position of strength.
- In our view, cocos have the potential to offer investors the best of both worlds – equity-like returns through fixed-income instruments.