Actively managed certificates (AMCs): Types and delimitation

Actively managed certificates (AMCs) differ markedly by structure in liquidity, risk and transparency. This article compares the five main distinctions.

The most important facts at a glance

• AMCs exist in various forms: open/closed, index-linked/strategy-linked, with or without leverage
• The AMC type essentially determines the risk/return profile and the typical applications
• The choice between discretionary and rule-based management influences the flexibility and transparency of the product
• Single-asset vs. multi-asset AMCs differ fundamentally in terms of diversification and complexity
• Delta 1 and leverage AMCs differ in risk profile, because leverage amplifies gains and losses

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Open vs. closed AMCs

One of the most fundamental differentiators of AMCs is their accessibility to investors over time.

What characterises open-ended AMCs?

Open-ended AMCs allow regular entry and exit. The issuer usually offers daily or weekly dealing days on which investors can add to or reduce a position.

The advantages of open AMCs lie in their flexibility and ongoing adaptability to market developments. There is usually no fixed term.

What are closed AMCs?

In contrast, closed-end AMCs have a fixed term or a defined placement volume. No further investments are possible after the end of the subscription phase, and redemption before the end of the term may be restricted or subject to costs .

This structure is particularly suitable for strategies with illiquid underlyings or where a longer-term capital commitment is required to implement the investment strategy.

Comparison: open vs. closed AMCs

Open AMCs can be traded on regular dealing days and allow flexible investment horizons. Closed-end AMCs have a fixed horizon and limited liquidity.

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Index-linked vs. strategy-linked AMCs

There are two fundamentally different approaches to AMCs when it comes to implementing the investment strategy.

How do index-linked AMCs work?

Index-linked AMCs track an actively managed index as a reference. This index is compiled and regularly adjusted by the asset manager. The performance of the AMC is directly linked to the performance of this index.

The advantage of this structure is its transparency - the composition of the index and its changes can be published regularly. Investors therefore have a clear idea of which assets they are invested in.

What distinguishes strategy-linked AMCs?

With strategy-linked AMCs,the portfolio manager makes direct investment decisions without being tied to a specific index. This structure enables a more immediate and flexible response to market changes.

Adaptability is the key advantage here, as the manager can implement his strategy without the restrictions of a predefined index. However, this often goes hand in hand with less transparency for the investor.

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Delta 1 AMCs vs. leverage AMCs

The risk/return profile of an AMC is largely determined by the use of leverage.

With both types, the investor bears the market risk of the underlying assets and issuer risk.

What are Delta 1 AMCs?

Delta 1 AMCs replicate the underlying investment strategy in a 1:1 ratio. This means that the performance of the certificate corresponds directly to the performance of the underlying assets, without additional amplification or hedging.

How much a Delta 1 AMC fluctuates is determined by the underlying assets and their risk. Delta 1 AMCs offer direct participation in an actively managed strategy.

How do leverage AMCs work?

Leverage AMCs use derivatives or structured products within the strategy to amplify (or in some cases hedge) returns. A change in the value of the underlying assets leads to a disproportionate movement in the certificate value.

This structure enables higher potential returns, but is associated with correspondingly higher risks. Even small market movements can lead to significant fluctuations in value.

Single-asset vs. multi-asset AMCs

The breadth of asset classes within an AMC largely determines its diversification and complexity.

A single-asset AMC covers one asset class and serves as a building block. A multi-asset AMC spreads the assets across several asset classes, whose weightings can be adjusted.

What characterises single-asset AMCs?

Single-asset AMCs focus on a single asset class, such as equities, bonds, currencies or cryptocurrencies. Diversification can certainly take place within this class (e.g. various equities), but the focus remains on one category of assets.

The advantage of these AMCs lies in their clarity and focus. Because each covers only one asset class, the investor or their Wealth Manager decides how several such AMCs are weighted in the portfolio.

What do multi-asset AMCs offer?

Multi-asset AMCs invest across different asset classes - typically a combination of equities, bonds, commodities and alternative investments. The portfolio manager can actively adjust the weighting between these classes.

These AMCs offer built-in diversification and allow the manager to react to market changes not only within an asset class, but also by rebalancing between classes.

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Discretionary vs. rule-based AMCs

The way decisions are made in portfolio management is another important differentiator.

*Rule-based AMCs offer potentially higher transparency - especially with disclosed, standardised models

What does discretionary management mean?

With discretionary AMCs, the portfolio manager makes investment decisions at his own discretion, based on his market assessment, experience and analysis. They have the freedom to react flexibly to market changes and adjust their strategy accordingly.

The advantage lies in the adaptability and the ability to incorporate non-quantifiable factors such as geopolitical events or market psychology into the decision-making process.

How do rule-based AMCs work?

Rule-based AMCs follow a systematic, often quantitative approach. Investment decisions are made on the basis of predefined rules and algorithms that take certain market indicators, factors or other objective criteria into account.

These AMCs are characterised by a high degree of consistency and discipline in strategy implementation and are less susceptible to emotional decisions or behavioural biases.

AMCs compared to other investment products

To fully understand the characteristics of AMCs, a comparison with related financial products is helpful.

AMCs vs. traditional investment funds

In contrast to traditional investment funds, AMCs are not subject to the Collective Investment Schemes Act (CISA) in Switzerland, but are classified as structured products. This entails fewer regulatory restrictions, but also less investor protection.

AMCs offer shorter launch periods (2-3 weeks vs. 3-6 months for funds) and more flexibility in the design of the investment strategy. Investors, however, bear issuer risk. In a contractual investment fund, the fund assets are segregated for the benefit of investors if the fund management company becomes insolvent. This segregation does not protect against market losses.

AMCs vs. ETFs

Compared to exchange-traded funds (ETFs), AMCs are actively managed instead of passively tracking an index. This leads to higher management fees, but offers the potential for excess returns through active management. Whether active management recoups the higher costs depends on the strategy and the period.

AMCs tend to be less liquid than exchange-traded ETFs, but offer a wider range of investment strategies, including those not available in ETF form.

AMCs vs. traditional structured products

Unlike traditional structured products, AMCs do not have a fixed term (for open-ended structures) and offer ongoing active management. Traditional structured products, on the other hand, often have a fixed payout mechanism and a defined term.

AMCs allow the strategy to be adjusted flexibly over time, while traditional structured products have a fixed payoff structure.

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The five distinctions side by side

The five distinctions can be combined in many variants, for example into an open-ended, strategy-linked multi-asset AMC.

Minimum amount, fees and the exact structure of an AMC are set out in the issuer’s term sheet. If an AMC is offered to retail clients outside a discretionary mandate, a key information document is also required.

Conclusion

The five distinctions concern liquidity, risk, transparency, diversification and who makes the investment decisions. Compared with traditional funds, AMCs are launched faster and are more flexible in strategy, but the investor bears issuer risk. As structured products, AMCs are not subject to the Collective Investment Schemes Act (CISA), but the Financial Services Act (FinSA) applies to their offering.