Why an update – and why now?
Government bonds are a key stabilizer for multi-asset portfolios. Historically, high-quality government bonds have provided diversification and protection during periods of sharp equity declines. However, standard indices are primarily weighted by debt: the higher a country's debt level, the greater its index weighting. This leads to concentrations that do not necessarily serve the goal of a robust portfolio structure. OLZ has therefore always pursued a quality- and risk-conscious approach that prioritizes stability, diversification, and sustainability. The update is a further development of this proven philosophy, which seems more important than ever in times of spiraling government debt and growing uncertainty in many places.
What is changing? – Evolution of the model
Additional debt criteria
Fiscal soundness is a key selection criterion for the investment universe. All debtors must therefore have a credit rating of at least A+. In addition, we ensure that the weighted debt level of the countries in the portfolio is at least 20% below that of the FTSE WGBI benchmark. This reduces structural vulnerabilities and increases resilience to shocks that may arise from overly indebted debtors.
Stricter sustainability requirements
The OLZ Government Bonds Funds now take into account higher sustainability standards. In future, the portfolio will aim for an MSCI ESG rating of at least AA. At the same time, the implied temperature rise (MSCI ITR) should be strictly below that of the benchmark. This further strengthens the strategy's sustainability contribution without diluting the core risk/return profile.
Partial alignment with the country allocation of the WGBI
Country weightings are more closely aligned with the FTSE WGBI and are accompanied by clear diversification requirements, including a maximum country weighting of 20%. This limits cluster risks (particularly the US debt issue) without losing sight of the market structure.
Risk-oriented portfolio optimization
OLZ optimization combines tracking error control with a minimum variance approach. The aim is to further reduce portfolio volatility while remaining close to the reference universe. The result is a robust risk profile that fits the role of government bonds as an anchor of stability.
What remains? – Proven quality characteristics
The fundamental investment philosophy of focusing on high-quality debt issuers in developed markets remains unchanged in order to continue to integrate stability and security into the portfolio. Broad diversification with clear limits per issuer avoids concentration risks, while optimizing country allocation reduces portfolio volatility as much as possible. Foreign currency risks continue to be consistently hedged in CHF to neutralize exchange rate fluctuations.
Conclusion
The update to the OLZ Government Bond Funds is a logical, evolutionary step: the proven focus on quality, stability, and diversification is being supplemented by stricter sustainability requirements, additional debt criteria, and closer benchmark orientation. For investors, this means comparable return opportunities to the market, combined with lower structural risk and an improved ESG profile – exactly the characteristics that government bonds should offer in a modern portfolio.
Interested in details about the updated investment approach or the other OLZ funds?
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