Risk Disclosure
This document provides an overview of the key risks associated with the financial instruments used by Global Strategic Advisory Group AG (“GSAG”) in the management of client portfolios and the provision of investment advice, in accordance with Art. 8 and 9 of the Swiss Financial Services Act (FinSA).
This overview is not exhaustive. The risks described may occur individually or in combination and their impact will depend on market conditions, the structure of your portfolio and your individual investment strategy. Investing in financial instruments always involves the risk of partial or total loss of the capital invested.
For a comprehensive explanation of instrument-specific risks, please refer to the Swiss Bankers Association brochure Risks Involved in Trading Financial Instruments (2023), provided to you at the outset of our relationship.
1. General Risk Factors
Market Risk
The value of financial instruments is influenced by general market conditions, including economic developments, political events, regulatory changes and investor sentiment. Markets can be volatile and prices may move sharply and unpredictably.
Liquidity Risk
Not all financial instruments can be bought or sold at any desired time or at a fair price. In periods of market stress, or for instruments with limited trading activity, it may be difficult or impossible to exit a position at an acceptable price. This risk is particularly relevant for alternative investments, structured products and instruments with lock-up periods.
Currency Risk
Investments denominated in a currency other than your reference currency are exposed to exchange rate fluctuations. A depreciation of the investment currency relative to your reference currency will reduce the value of the investment, even if the instrument has performed positively in its own currency.
Counterparty and Credit Risk
There is a risk that an issuer, borrower or counterparty may fail to meet its financial obligations due to insolvency, default or other adverse events. This risk applies to bonds, structured products, OTC derivatives, money market instruments and bank deposits above deposit protection limits.
Concentration Risk
Portfolios with significant exposure to a single issuer, sector, geography or asset class may experience greater volatility than diversified portfolios. GSAG will inform you when individual security exposure exceeds 10% or issuer exposure exceeds 20% of your portfolio, subject to applicable exemptions.
Inflation Risk
The real value of an investment may be eroded over time if the rate of return does not keep pace with inflation, particularly relevant for low-yielding or capital-preservation strategies.
2. Equities
Equities represent an ownership interest in a company. Their value is influenced by the company’s financial performance, management quality, competitive position and broader market conditions. Key risks include price volatility, the possibility of partial or total loss if the company performs poorly or becomes insolvent and dividend uncertainty. Equities in emerging markets or smaller companies carry additional risks including lower liquidity and greater price sensitivity.
3. Fixed Income (Bonds and Debt Instruments)
Interest Rate Risk:
Bond prices move inversely to interest rates. When interest rates rise, the market value of existing bonds typically falls. Longer-duration bonds are more sensitive to interest rate changes.
Credit Risk:
The issuer may fail to make scheduled interest payments or repay the principal at maturity. Credit risk varies significantly between investment-grade and high-yield issuers.
Call and Reinvestment Risk:
Some bonds may be redeemed early by the issuer, requiring reinvestment at potentially lower rates.
High-yield bonds carry significantly higher credit risk and should be considered only within the context of an appropriate risk profile.
4. Collective Investment Schemes (Funds)
Funds pool the assets of multiple investors and invest in accordance with a defined strategy. They are subject to the risks of their underlying investments. Additional fund-specific risks include redemption risk (open-ended funds may temporarily suspend redemptions in stressed markets), manager risk and – for non-UCITS and alternative funds – limited liquidity, restricted transferability and reduced regulatory transparency. Where GSAG invests in funds not approved for distribution to retail investors in Switzerland, this is done in compliance with applicable legal requirements.
5. Structured Products (including AMCs)
Structured products combine traditional financial instruments with derivatives to create customised risk/return profiles. They carry:
Issuer/Counterparty Risk:
The investor bears the full credit risk of the issuer. If the issuer defaults, the investor may lose part or all of the invested amount regardless of underlying performance.
Complexity and Valuation Risk:
Payoffs depend on one or more underlying instruments and may involve barriers, caps or participation rates that are difficult to evaluate independently.
Liquidity Risk:
Many structured products have no exchange listing and can only be sold back to the issuer or limited market makers, often at a significant discount.
Actively Managed Certificates (AMCs) carry the same risks as other structured products, with the additional risk that active portfolio management decisions may negatively affect the certificate’s value.
6. Alternative Investments
Alternative investments include private equity, private credit, hedge funds, real estate, infrastructure and commodities. Key risks include illiquidity (long holding periods, lock-up provisions, limited secondary markets – in some cases several years), valuation uncertainty (model-based rather than market-observable), leverage amplifying losses, manager and operational risk and regulatory risk across jurisdictions. These instruments are generally suitable only for investors with high risk tolerance, long investment horizons and the financial capacity to sustain a total loss.
7. Derivatives
Derivatives – including options, futures, forwards, swaps, and warrants – carry:
Leverage Risk:
Small movements in the underlying can result in large gains or losses relative to the invested amount, potentially exceeding the initial investment.
Counterparty Risk:
OTC derivatives are subject to the credit risk of the counterparty. Exchange-traded derivatives carry lower counterparty risk due to central clearing.
Complexity and Expiry Risk:
Derivatives have finite lifespans and complex pricing. If the expected market movement does not occur before expiry, the instrument may expire worthless.
Within GSAG’s mandates, derivatives are used primarily for hedging purposes or tactical positioning, subject to the limits defined in each client’s investment strategy.
8. Currency Transactions and Foreign Exchange Risk
Investments in non-reference currency assets, or the use of FX derivatives for hedging, involve exchange rate risk. Currency markets can be highly volatile. Hedging does not eliminate currency risk entirely and itself carries cost and residual basis risk.
9. Leverage
Certain strategies permit the use of leverage – borrowing to invest more than the equity capital available. Leverage amplifies both gains and losses. In adverse market conditions, leveraged positions may result in losses significantly exceeding the original investment, and forced liquidation may occur at unfavourable prices. Leverage is only used within the scope expressly permitted by the applicable investment strategy.
10. Emerging Markets
Investments in emerging market economies carry additional risks compared to developed markets, including higher political and economic instability, less developed legal and regulatory frameworks, reduced market transparency, greater currency volatility and lower liquidity.
11. Past Performance and Forward-Looking Statements
Past performance of any financial instrument or investment strategy is not a reliable indicator of future results. Any projections or target returns presented by GSAG are illustrative only and do not constitute a guarantee or commitment.
This risk disclosure is a general overview and does not replace personalised advice. Risks relevant to your specific mandate will be discussed individually as part of the suitability assessment. Read this document together with your Portfolio Management Agreement and the FinSA Client Information document.