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Characteristics of securities and their associated specific risks

All forms of investing involve risks. The investment firm is obliged to inform the client about these risks and has done so. The risks depend on the investment. An investment can be more or less speculative. Generally, an investment with a higher expected return involves greater risks. Below, the characteristics of the securities in which the client may trade are discussed, as well as the specific investment risks associated with them. Specifically, for all investments, sustainability risk can be mentioned. As a result of developments in the field of sustainability, the value of investments may be negatively affected.

Trackers
A tracker invests in stocks, bonds, real estate, or other categories that are part of a specific index. From an investment perspective, a tracker carries the same risks as the underlying investment category, with the understanding that broad diversification strongly reduces specific risk. However, market risk remains. The tracker provider establishes a separate legal entity for each tracker, just like with an investment fund, in which the individual securities are placed. If the tracker provider encounters financial problems, this does not negatively affect the rights and value of the tracker in which you invest. A tracker provider attempts to closely track the return of the underlying index. To achieve this, the underlying securities are often purchased.

Stocks
Stocks represent participations in the share capital of a company. Economically speaking, the shareholder may consider themselves an owner of part of the company. Stocks can be registered or bearer shares. Stocks represent risk-bearing capital. In case of bankruptcy, the value may fall to zero; in other words, the maximum risk amounts to 100%. On a micro level, the value development depends, among other things, on realized and expected business results and the quality of management. On a macro level, the overall economic situation, interest rate developments, and currency movements play an important role in stock price fluctuations.

The risks of investing in stocks can be significant and are influenced by various factors.

Certificates of Shares
Certificates of shares are securities representing original shares. The shares themselves are usually held by a trust office. Certificate holders are, in a sense, entitled to the underlying shares. Not all rights associated with shares apply to certificates of shares (for example, voting rights linked to shares are often limited).

Bonds
Bonds are debt securities of a loan issued by a (government) institution or by companies. Almost every bond is linked to an annual interest payment, the so-called coupon. Nearly all bonds are redeemable. Bonds belong to debt capital (borrowed money), in contrast to stocks (equity capital).

There are special forms of bonds. These special forms can relate to the method of interest payment, the manner of redemption, the issuance method, and special loan conditions. The bond’s return can, for example, depend on the prevailing interest rate (examples are surplus bonds and interest-indexed bonds) or on the profit of the institution that issued the bonds (such as profit-sharing bonds and revenue bonds). There are also bonds on which no interest is paid (zero coupon bonds). The return on these bonds is obtained from the difference between the issue price and the later redemption price.

The risks of bonds primarily depend on the interest rate. An increase in interest rates will generally lead to a decrease in the bond’s value. A sharp rise in interest rates can therefore cause a substantial price decline of the bond, which may result in significant losses if sold before the redemption date.
Additionally, the creditworthiness of the issuing institution is important.
Bonds issued by governments of ‘wealthy’ countries can be considered safe. However, bonds issued by ‘less wealthy/poor’ countries or by companies may carry considerably more risk. The maximum risk in case of non-fulfillment of payment obligations by the issuing institutions is 100%.

Convertible Bonds
A convertible bond is a bond that can be exchanged for shares during the so-called conversion period at the conversion rate, at the request of the holder, under certain conditions.

The risks are a combination of those associated with stocks and bonds.

Alternative Investments
Alternative investments (also called “alternative investments”) refer to a collection of investment forms that exploit inefficiencies, imbalances, and trends in capital, securities, currency, and commodity markets. This results in a return that is more or less independent of the value developments on stock and interest rate markets. This means that such investments can improve the risk/return profile of an investment portfolio in the long term.

Risk of alternative investments: there is a possibility that an investment yields little or no income. In case of unfavorable price developments, the capital invested may be lost entirely or partially.
Managers of alternative investments may invest in and actively trade instruments with significant risks, including derivatives. Additionally, managers may use borrowed capital (leverage), which amplifies the impact of value fluctuations on the value of alternative investments both positively and negatively.
It may occur that due to a lack of liquidity, processing a request to sell shares in alternative investments is delayed.

Other

This annex cannot describe all characteristics of all securities. If the characteristics of the securities described above differ, the client will be informed in writing about the characteristics of these securities and the associated specific risks. When choosing investments, the client must carefully consider which securities fall within his or her investment objectives. All forms of investing involve risks to varying degrees. The client should only invest in these risky investments if the client can and wants to bear the (potential) loss and is fully aware of these risks.

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