Beware of mixed funds: interest rates can cost returns
Stocks are volatile, pensions do not know where to go, real estate is too expensive anyway, and AIFs (common: closed-end funds) are often in bad shape with investors. So where do you put the fortune? The solution seems simple: a healthy mix of different asset classes - multi asset.
"Over the past few years, Multi Asset has clearly become the core asset of many of our clients," said Sandra Sonnleitner of Allianz Global Investors about half a year ago in a post on "The Investment." According to the Allianz Global Investors study "The Odysseus Capital Investment Strategy", multi-asset funds have become increasingly important. Between 2002 and 2017, the Europe-wide inflow amounted to 870 billion euros. Incidentally, about every fourth euro comes from Germany. In the fund statistics (as of August 31) of the BVI Bundesverband Investment und Asset Management, mixed funds rank second: with a total volume of EUR 285 billion, they are well ahead of the bond funds (EUR 206 billion). As the Allianz study finds, multi-asset products are very well targeted by investors as a stand-alone investment vehicle.
"In fact, with a view to the past, this is understandable. Shareholders of mixed funds could not do too much wrong for many years. Yields remained stable at a few percent per annum, even in weak years on the equity side, holding 40 to 50 percent of government and corporate bonds. The interest rate development of the last decades has given these depots a performance contribution of four to seven percent per year for many years ", says dr. Martin Stötzel, Managing Partner at the independent asset management Rhein Asset Management (Luxembourg and Düsseldorf).
Only: This is over now, warns the asset manager. Since 2000, the average yield on German government bonds has fallen from 5.4 percent to the current yield of 0.36 percent. By the end of the summer it was only 0.14 percent. According to Martin Stötzel, the problem is that a short-term rise in interest rates will permanently damage the return. He sets this with the example of five-year bonds. If these only increase by one percent, this currently means a price loss of just under five percent for the bonds. This will negatively impact the returns of many mixed funds - especially as many multi-asset concepts are even more likely to be invested in much riskier government bonds than German ones. "You just have to think back to Italy after the elections in May: Italian ten-year government bonds lost around ten percent in a short time," recalls Martin Stötzel.
So what to do? Also condemn mixed funds and wait for the next product? Of course not. "Mixed funds continue to be an important tool for investors to diversify widely with one product. However, fund managers are called upon to ensure sustainable results through a differentiated investment policy in the various asset classes - even in the changing framework conditions with volatile stock markets and uncertain bond outlook, "says Marco Bätzel, asset manager at WBS Hünicke in Düsseldorf and mixed fund manager ( "Strategy World Select"). For him, mixed funds remain an essential investment for asset managers and self-decision makers. "Investors benefit from a multi-asset concept, because they can cover multiple asset classes with one product. This prevents errors such as home bias or herd behavior. "
In addition to the typical investment measures (fundamental analyzes in combination with technical chart analysis), Marco Bätzel sees professional hedging as the main focus in order to secure the results of mixed funds. An example: the writing of a call option, in order to cushion the loss potential of the share portion. Bätzel explains: "As a seller of a call option, I receive a premium as soon as I close the deal. For example, I am selling an option with maturity until December 21st at a current Dax level of 11,723 points at a base price of 11,800 points. For this I immediately receive a premium of 270 euros per option. If the Dax is below 11,800 points on the reporting date, the option expires worthless. This can mitigate the risk of loss. "
On the other hand, asset manager Stötzel warns of a general "keep it up". "The classic mix of dividend and annuity bonds no longer provides a broad, crisis-proof portfolio. At the moment we see that quite massively. As a result, more and more alternatives are in focus, such as market-neutral concepts. "This approach focuses on alternative strategies that are independent of the stock market development and can avoid losses for the entire portfolio, especially in times of crashes such as sharp rises in interest rates. In doing so, fund managers use long-short or arbitrage strategies as well as approaches that systematically collect premiums, such as exchange rates for currencies.
Incidentally, the Rhein Asset Managers are stabilizing their own mixed fund "Balanced Smart Global" with short-term bonds and guaranteed products, while selected certificates are designed to ensure returns in the event of uncertainty in the markets.
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