With the continuous development of the financial market, bond funds have become an investment method that investors can't ignore. Compared with stock funds, bond funds are less risky and more stable, so they are popular. It is a problem worthy of investors' attention. This paper will discuss the definition, function, advantages and disadvantages of leverage ratio and how to manage it.
I. Definition of leverage ratio
Leverage ratio is an investment strategy adopted by bond fund managers to improve the return on investment. Bond fund managers increase the investment principal by borrowing funds, thus improving the fund's income. The leverage ratio is the ratio of the funds borrowed by the bond fund manager to the total assets of the fund. For example, if the bond fund manager borrows 1 100 million yuan and the total assets of the fund are 1 100 million yuan, the leverage ratio is 10%.
Second, the role of leverage ratio.
Can play the following roles:
(a) Increasing the income of the Fund
Borrowing external funds can create more investment opportunities for the fund, thus improving the fund's rate of return. Bond fund managers can optimize the fund's investment portfolio by adjusting the leverage ratio to obtain higher returns.
(b) Improve the liquidity of the Fund.
Highly leveraged bond funds can sell their bonds faster, thus obtaining more cash and improving the liquidity of the fund. This is especially important for funds that need to meet the redemption needs of investors quickly.
(3) lowering the investment threshold
It can help small investors to enter the bond market more easily. Without leverage, small investors will not get the same investment opportunities as large institutional investors.
Third, the advantages and disadvantages of leverage ratio
Has its advantages and disadvantages:
(A) Advantages
1. Improve fund returns: The leverage ratio can provide more investment opportunities for the fund, thus improving the fund's return rate.
2. Improve fund liquidity: highly leveraged bond funds can sell bonds in their hands faster, thus obtaining more cash and improving fund liquidity.
3. Lower the investment threshold: Leverage ratio can help small investors to enter the bond market more easily.
(2) Disadvantages
1. market risk: highly leveraged bond funds face greater risks when the market fluctuates. If there are adverse changes in the market, bond fund managers will face greater risk of loss.
2. Interest risk: bond fund managers need to pay interest when borrowing funds. If the market interest rate rises, bond fund managers need to pay higher interest. This will have a negative impact on the income of the fund.
3. Blindness in pursuing high returns: highly leveraged bond fund managers may pursue high returns too much and ignore risk control. This may bring losses to investors.
Fourth, how to manage the leverage ratio.
Managing leverage ratio is an important responsibility of bond fund managers. Here are some ways to manage leverage:
(A) control the cost of borrowing
Bond fund managers should pay close attention to the changes in market interest rates and use appropriate financial instruments to control borrowing costs. For example, when interest rates rise, financial instruments such as short-term bonds can be used to control borrowing costs.
(2) Control risks
Bond fund managers should always pay attention to market risks, rationally allocate investment portfolios and avoid risks. For example, you can invest in bonds with different maturities and different credit ratings to diversify investment risks.
(3) Adjust the leverage ratio regularly.
Regular adjustment of leverage ratio can help bond fund managers better control investment risks. For example, when the market fluctuates greatly, the leverage ratio can be appropriately reduced to balance risks and benefits.
It is an investment strategy, which can provide more investment opportunities for the fund and improve its rate of return. High leverage ratio also faces greater market risk and interest rate risk. Bond fund managers should reasonably control leverage ratio, avoid risks by controlling borrowing costs, controlling risks and adjusting leverage ratio regularly, so as to achieve long-term and stable return on investment.