04/07/2019 - Investment Themes: Multi-Asset


Allow Multi-asset funds to let the central banks work for you

The central bank's zero-interest policy means that German savers miss out on a high double-digit billion euro amount every year. Low or non-existent interest rates and relatively high valuations on the stock markets raise the question of how to invest your money profitably with a manageable risk. Multi-asset funds are well suited.

By Richard Schmidt, Head of Absolute Return at DJE Kapital AG


The central bank's zero-interest policy means that German savers miss out on a high double-digit billion euro amount every year. Low or non-existent interest rates and relatively high valuations on the stock markets raise the question of how to invest your money profitably with a manageable risk. Because the loose monetary policy of the central banks will be with us for a long time to come, investors should take advantage of these conditions - and let the central banks work for them. Multi-asset funds are well suited. This is because investors do not commit themselves to a single asset class such as equities or bonds, but can benefit from the opportunities offered by a variety of asset classes - from gold and silver to bonds issued by companies in developing countries.

Sword of Damocles over the world's economies

In the past, the zero interest rate policy and the purchase of trillions of bonds and shares have meant that stocks, real estate or even bonds have gone through an unprecedented revaluation phase. The result is that government and corporate debt have risen too high and too fast. But if in doubt, central banks can pursue their zero interest rate policy for longer than investors can afford to leave their money in their current account - in order to allow inflation to consume it slowly but surely. The Japanese central bank, for example, has bought up almost half of Japanese government bonds and over five percent of Japanese equities over the past decade. It has thus not only become Japan's largest creditor, but also the largest shareholder of Japanese companies. There is no end in sight. This is another reason why the world's central banks will be forced for a long time to make servicing this high debt burden as cheap as possible - not only in Japan. Since then, DJE has significantly expanded and institutionalized its exclusion criteria. As a signatory to the United Nations Principles for Responsible Investment (PRI), DJE ensures that companies selected for a fund portfolio operate and produce in an environmentally conscious manner, respect human rights, observe labour standards and fight corruption. If a company grossly violates these ESG principles, it is out of the question for DJE.

No fear of currencies

If you take a look across the Atlantic, you can quickly see that US government bonds are more profitable than a whole series of European government bonds, including Portuguese ones. They currently yield over one percentage point more than comparable Portuguese government bonds and two percentage points more than German bonds. And this despite the much better credit quality of the United States. Assuming - as has actually been observed over the past five years - a fixed or at least constant exchange rate between the euro and the USD, it makes sense to add US government bonds as well as corporate bonds - while accepting the exchange rate risk.

At this point, investors are often unsure and prefer portfolios with as little foreign exchange risk as possible. However, the value of the euro is not only based on purchasing power parities, but also on short-term interest rate differentials and political stability. Thus, supporters of pure euro portfolios must ask themselves whether they want to make their asset development dependent on the continued existence of the grand coalition in Germany or on the planned high level of new debt in Italy. If not, then they should not be 100% invested in euros, which will remain a political currency for the foreseeable future, but should invest at least part of their assets in other currencies such as the US dollar, the Japanese yen or the Norwegian krone. Because in addition to a broad diversification of securities, a diversification of currencies is also part of a solid asset accumulation.

Trust in long duration

Equally attractive is active management of the bond portfolio. This includes buying ten to 15-year government bonds and selling them as soon as they fall within the range of two to three years to maturity - i.e. within the striking distance of money market funds. This allows additional yields to be generated that are relevant in the long term, above all thanks to the steepness of the curve that still exists in Germany. Carry-optimised low-volatility strategies such as the balanced combination of long positions in German government bonds with long positions in Italian government bonds also make sense. On the one hand, you let the central banks work for you, on the other hand you generate a high current yield - without accepting possible stronger fluctuations of pure equity portfolios.Beimischung von Gold ist unerlässlich

Gold has lost much of its shine to many investors due to its poor performance since 2011. Many people forget that central banks have regularly ironed out periods of weakness or even panic on the capital markets and that the positive effect could not be felt. Quantitative Easing - the mass purchase of bonds and equities - reduces volatility, but is also a strong long-term argument for gold and against paper currencies. Gold is also enjoying great institutional popularity at the moment. Against the backdrop of the trade conflict between large non-Western central banks in particular, there is a desire to deposit more gold in their currencies and thus become less dependent on the US dollar and speculative attacks. In a nutshell: Gold or solid gold mining stocks continue to be an important means of protection in the event of negative developments or higher inflation, for example. This means that gold or its substitutes form a significant part of any robust multi-asset portfolio.

Drawing the loss line with the value protection concept

Multi-asset funds are particularly interesting if the investor wants to profit upwards from rising markets and central banks - but wants to be hedged downwards with a limited loss in value. In this case, multi-asset funds can be combined with value protection concepts. In this case, equities and other high-risk positions are gradually reduced as soon as the fund's performance falls below predefined targets. In addition, the fund is positioned particularly robustly by taking up a high proportion of negatively correlated positions with equities such as Pfandbriefe or German government bonds. They offer a counterweight to the equity component.

In order to avoid these risks as far as possible, DJE cooperates with the independent data provider MSCI to screen the investment universe according to ESG criteria. In addition, the strengths and weaknesses of sustainability factors and the potential of green technology are identified and compared with the competition. This benefits the DJE - Zins & Dividende as well as all other DJE funds.Fazit: 45 Jahre Einzeltitel-Expertise zahlen sich weiter aus

Conclusion: 45 years of single-title expertise continue to pay off

For the long-term performance of multi-asset funds, it is of decisive added value to select high-quality individual securities and to monitor and evaluate them on an ongoing basis. At DJE, the analysis process of individual companies is of paramount importance. A team of analysts regularly meets company representatives, evaluates their business strategy and processes and evaluates the company's key figures. The sustainability strategy also plays a major role in this. Only if a company can convince all around, is it placed on the so-called High Conviction List - the list of globally most promising companies and bonds - and is relevant for DJE funds, among others. With this strictly fundamental approach, which DJE has been pursuing for 45 years, we clearly distinguish ourselves from asset managers who compile their risks solely on the basis of factor models or only rely on ETFs.


Note: All information published is for your information only and does not constitute investment advice or other recommendation. Long-term experience and awards do not guarantee investment success. Securities are subject to market-related price fluctuations which may not be compensated for by the active management of the asset manager or investment advisor. This information cannot replace a personal consultation. All information has been provided with care and to the best of our knowledge at the time of preparation. Despite all due care the data may have changed in the meantime. Further information on opportunities and risks can be found on the website www.dje.de. The sales prospectus and further information are available free of charge in German from DJE Investment S.A. or at www.dje.de The fund management company is DJE Investment S.A. DJE Kapital AG is the distribution Agent.