Actively Managed Certificates (AMCs): Explanation and Insights

Actively Managed Certificates, or AMCs, combine an actively managed investment strategy with the simple form of a single security. An Actively Managed Certificate is a structured product: a portfolio manager selects the underlying assets according to fixed rules and adjusts them continuously to the markets. Legally, an AMC is a debt security of the issuer, not a protected fund asset. This is where the most important difference to funds and ETFs lies: counterparty risk.

AMCs are not new to the market for structured products. Thanks to the digitalisation of issuance, however, they are now accessible to a wider range of investors. Specialised providers, not only large banks, can launch actively managed certificates. Innovative wealth managers thereby often open access to professionally managed investments to private investors, frequently with manageable investment amounts.

Key takeaways

• AMCs are among the structured products, not the collective investment schemes (Source: SSPA; BDO; LezziLegal).
• The portfolio is actively managed and follows a discretionarily managed strategy.
• Wide range of possible underlying assets, from equities and bonds through to alternative investments.
• Legally, an AMC is a debt security of the issuer, and therefore not a protected segregated asset (Source: BDO).
• This gives rise to a counterparty risk: if the issuer defaults, a total loss is possible (Source: SSPA).
• AMCs are not governed by the Collective Investment Schemes Act but by the FIDLEG; for distribution to retail clients, Art. 70 FIDLEG applies (Source: FIDLEG; LezziLegal).
• Digitalisation has standardised issuance and made AMCs accessible to wider groups of investors.

What is an Actively Managed Certificate (AMC)?

An Actively Managed Certificate is one of the structured products and pursues an active investment strategy. This means that the underlying assets are continuously adjusted to market activity. With passive investment strategies, by contrast, the composition once chosen remains unchanged. A fixed equity allocation of 70 percent is then maintained regardless of what happens on the stock market, so no active management takes place.

Through an AMC, investors invest in a wide range of assets, for example:

• Equities
• Bonds
• Commodities
• Real estate
• Digital currencies
• Collectibles

The performance follows the underlying assets. An investment manager selects them according to defined rules and adjusts them dynamically to market developments.

Depending on their focus and investment strategy, actively managed certificates are also offered under the following names:

• Exchange Traded Note (ETN)
• Dynamic Equity Notes
• Exchange Traded Instruments
• Strategy Notes
• Strategy Index Certificates
• Actively Managed Trackers

Debt securities, exchange-traded or over-the-counter

Issuers of actively managed certificates include banks, securities firms and purpose-built special purpose vehicles (SPVs). The issuers issue the certificates as their own debt securities. This can be done on or off the balance sheet.

Because the certificates are assigned an ISIN, they are transferable securities and can be held in client custody accounts at various banks. Some AMCs are traded on the stock exchange, others are placed privately.

Read more: Fees when investing

How does an AMC work? The issuance process step by step

To understand how an AMC works, it helps to look at the individual steps in chronological order:

• Initialisation: the issuer defines, together with the wealth manager, the underlying assets that the AMC is to comprise.
• Guideline: the issuer draws up a guideline according to which the certificate is managed.
• Pricing: depending on volume and strategy, the pricing including the management fee is set.
• ISIN and documentation: a securities identification number is created and, depending on distribution, the key information document or prospectus required under FIDLEG. After that, the debt instruments are recognised and transferable.
• Active management: in accordance with the defined strategy, a portfolio manager monitors the portfolio and realigns it to developments in the financial markets.
• Liquidity: AMCs are either traded on the stock exchange or returned to the issuer.
• Income: depending on the income from the underlying assets and the agreements made, ongoing distributions are paid out.

Read more: Actively managed certificates (AMCs): types and distinctions

How does an AMC differ from a fund or ETF?

The distinction between an AMC, a fund and an ETF determines protection, flexibility and risk. At first glance all three look similar, because they bundle a portfolio. Legally, and in their effect on investors, however, they differ markedly.

• Legal form: a fund and a classic ETF are collective investment schemes with protected segregated assets. An AMC is a debt security of the issuer and is not governed by the Collective Investment Schemes Act.
• Counterparty risk: with funds and ETFs the assets remain protected if the provider becomes insolvent. With an AMC, investors carry the issuer’s default risk.
• Management: a classic ETF passively tracks an index. An AMC is actively managed, similar to an active fund, but in the simpler form of a security.
• Flexibility and set-up time: an AMC can usually be launched faster and rebalanced more flexibly than a fund, whose launch goes through a longer regulatory process.

Conceptually, an AMC therefore sits between an active fund and a bond: like an ETF it maps a basket of assets, like an active fund it allows ongoing rebalancing, and like a bond it carries the issuer’s credit risk.

What advantages do AMCs offer?

Particularly in comparison with traditional investment funds, Actively Managed Certificates offer the following advantages:

• Flexibility: active certificates can be adjusted or restructured quickly when needed.
• Wide range of investments: the investment horizon extends beyond traditional investments, all the way to alternative or non-bankable investments such as works of art.
• Active investment management: in challenging market phases, professional, active management can play to its strengths.
• Cost efficiency: because the issuance and management of an AMC can today be realised comparatively cheaply, wider groups of investors gain access to professionally managed strategies at manageable costs.

Broadening the investment horizon into alternative assets

AMCs give banks and other issuers a high degree of flexibility in selecting the underlying assets. They thereby go well beyond replicating funds or indices.

Alongside equities and bonds, alternative investments such as real estate, works of art or cryptocurrencies can also be included. This makes it possible to map investment goals very specifically, and to seize emerging market opportunities swiftly.

Read more: Private equity: a good investment for private investors?

Which risks and rules apply? The distinction from funds

Wealth managers with a concrete investment idea do not wait for the lengthy process of launching a fund; instead they set up an AMC for their investors. This raises the question of distinction between a structured product and a collective investment scheme.

Important: an Actively Managed Certificate is not a collective investment scheme under the Collective Investment Schemes Act.

In contrast to a fund, no separate liability substrate is available. From the issuer’s perspective the capital is debt, so there is no specially protected fund asset. Legally, an AMC is a debt security of the issuer. Investors should therefore examine the creditworthiness and trustworthiness of the issuer with particular care. If the certificate is issued through a special purpose vehicle with collateralised assets, the counterparty risk can be reduced.

According to the guidelines of the SIX Swiss Exchange and the Swiss Bankers Association, AMCs relate to a discretionarily managed basket. Discretionary means that the portfolio manager makes the investment decisions based on expertise and experience. An indirect reference is also possible, in which the underlying relates to an index.

Read more: AMC rules and regulations: what investors need to know

Regulation: FIDLEG instead of the Collective Investment Schemes Act

Because AMCs are not collective investment schemes, they are not subject to the product-specific supervision of FINMA (the Swiss Financial Market Supervisory Authority) in the way a fund is. What applies instead is the Financial Services Act (FIDLEG) and its ordinance. Depending on distribution, they require a key information document or a prospectus. For distribution to retail clients, Art. 70 FIDLEG requires a supervised issuer or guarantor, and in the case of special purpose vehicles, a collateral or guarantee (Source: FIDLEG; LezziLegal).

Anyone using AMCs as a wealth manager is also subject to supervision as a financial institution. Since 2021, FINMA has classified the use of an institution’s own financial instruments as an elevated risk and requires that risk management and control be organised independently of revenue-oriented activities. The supervisory authority also sets high standards for the cost transparency of structured products. Under anti-money-laundering obligations, the issuer must be identified as the contracting party (Source: BDO; FINMA, 2021).

Read more: Costs and tax treatment of actively managed certificates

AMCs: technology and accessibility meet rising demand

In recent years, actively managed certificates have become a more significant instrument for investors who want to diversify their portfolio. As technology advances and accessibility grows, they are meeting rising demand.

Specialised providers have digitalised issuance and management. This gives issuers a standardised process with greater efficiency, lower operating costs and faster turnaround. That makes the offering scalable for providers.

This development has changed how accessible AMCs are. Through digital applications, investors today access up-to-date information about their investments, execute transactions and manage their AMC portfolios flexibly.

Investment themes follow economic shifts

Changes in economic conditions, as with other structured products, lead to portfolio adjustments. With AMCs, these realignments can be implemented faster and more flexibly.

Among the investment themes currently in focus are:

• Technology and innovation: this includes areas such as artificial intelligence, cloud computing and financial technology. The ongoing development of new technologies and their influence on entire industries make the theme attractive.
• Sustainable and ESG-oriented investments: with growing awareness of environmental, social and governance aspects (ESG), demand is rising for AMCs that focus on sustainable companies or sectors.
• Healthcare and biotechnology: the healthcare sector remains a key theme, biotechnology in particular. AMCs that invest in companies with innovative solutions can benefit from new drugs, therapeutic approaches and medical technologies.
• Alternative energy and climate protection: with the growing pressure towards environmentally friendly practices, AMCs that invest in renewable energy and climate protection are gaining importance, for example solar and wind energy, electric mobility and sustainable infrastructure.

Who are Actively Managed Certificates (AMCs) suitable for?

Whether an AMC fits depends strongly on individual financial goals, risk capacity and personal investment strategy. Investors should examine their requirements carefully to make sure that an AMC suits their financial situation.

• Investors with a clear strategy idea: an AMC packages an actively managed strategy into a single security. Active management by experienced specialists makes it possible to seize market opportunities, while consciously carrying a counterparty risk.
• Investors with specific investment preferences: AMCs cover a wide range of asset classes and themes, such as technology, renewable energy, healthcare, ESG or alternative investments.
• Investors who want to manage risk actively: active management makes it possible to respond to market fluctuations. That makes AMCs interesting for investors who want more active risk control in their portfolio.
• Investors seeking diversification: through the ability to invest in different asset classes and themes, AMCs offer broad spread. This is attractive for investors who want to position their portfolio more broadly.

With every investment decision, investors should take into account the counterparty risk that exists in comparison with investment funds.

Read more: Saving taxes in Switzerland: structuring investments efficiently

Frequently asked questions about AMCs

What is an Actively Managed Certificate (AMC)? An Actively Managed Certificate is a structured product that packages an actively managed investment strategy into a single security. A portfolio manager selects the underlying assets according to defined rules and adjusts them continuously in line with market developments. Legally, an AMC is a debt security of the issuer, not a fund asset.

How does an AMC differ from a fund or ETF? A fund is a collective investment scheme with protected segregated assets. An AMC, by contrast, is a debt security of the issuer and is not governed by the Collective Investment Schemes Act. This is the key difference: with an AMC, investors carry a counterparty risk towards the issuer, whereas with a fund the assets remain protected if the provider defaults. In return, an AMC can usually be launched faster and rebalanced more flexibly than a fund.

What risks do AMCs carry? The most important risk is counterparty risk: if the issuer becomes insolvent, a total loss is possible, because from the issuer’s perspective the capital is debt and no protected segregated assets exist. Added to this are the market risk of the underlying assets and potential liquidity bottlenecks, above all with AMCs that are not exchange-traded. Issuing the certificate through a special purpose vehicle with collateralised assets can reduce the counterparty risk.

Are AMCs subject to FINMA supervision? AMCs are not collective investment schemes and are therefore not subject to product-specific FINMA supervision in the way a fund is. What applies instead is the Financial Services Act (FIDLEG) and its ordinance, which require a key information document or a prospectus depending on how the product is distributed. For distribution to retail clients, Art. 70 FIDLEG requires a supervised issuer or guarantor. Anyone using AMCs is also subject to supervision as a wealth manager.

Who are AMCs suitable for? AMCs suit investors who want to package an actively managed strategy into a single security and consciously accept a counterparty risk. They come into question for specific investment themes, alternative investments or broader diversification. Whether an AMC fits a personal situation depends on individual investment goals and risk capacity and should be examined carefully.

Conclusion

Actively Managed Certificates combine an actively managed strategy with the simple form of a security. Compared with investment funds, they allow a more flexible and more cost-efficient composition of portfolios, and the underlying assets span a wide range, all the way to alternative investments. The portfolio is actively managed and adapts continuously to market developments.

Through digitalisation, AMCs have become accessible to a broader range of investors. They come into question for investors who want to package a clear strategy idea, map specific investment preferences, manage risk actively or diversify more broadly.

What matters is understanding the legal nature: an AMC is a debt security of the issuer, which is why a counterparty risk exists and the creditworthiness of the issuer is central. Depending on strategy and volume, liquidity may also be limited, especially with AMCs that are not exchange-traded. Investors who understand and weigh these points can use an AMC appropriately as a flexible instrument in their portfolio.