"Growth is underestimated and inflation overestimated"

Stefan Breintner works alongside Dr. Jan Ehrhardt as co-fund manager of the DJE - Zins & Dividende. Here Breintner explains his understanding of the current discussion on stagflation, China and monetary policy and how both fund managers have recently positioned the DJE - Zins & Dividende.

Mr. Breintner, many stock market experts are currently discussing the possibility of stagflation. How do you assess this fear scenario for the capital markets?

On Google and Bloomberg, the term stagflation was searched more often recently than ever before in history. But we do not expect to enter a phase of extremely high inflation and comparable low growth for months or years.

What do you think are the arguments against such a scenario?

Many companies are currently not able to manufacture or sell their products due to logistical problems of the supply industry. However this has nothing to do with a real collapse in demand. In addition we are currently seeing price increases often in value chains where there is still a Corona-related disruption. Looking ahead to 2022 and 2023 these issues should disappear in the course of time.

What do you think is the scenario for growth and inflation?

In our view the growth impulse for 2022 tends to be underestimated and the long-term inflation impulse tends to be overestimated - at least with regard to the extreme inflation forecasts.

So the current high inflation will decline again?

In 2022 a number of factors will ease inflation. This applies, for example, to used and rental cars, which should become cheaper again. But inflation is still likely to remain at a higher level in the long term than it was before Corona.

At DJE Kapital AG you pay close attention to monetary policy. How do you assess monetary policy at the moment?

While the Bank of China may possibly adjust its monetary policy to expansionary, the ECB is likely to remain expansionary and the Fed should become more restrictive and initially scale back its bond purchases until mid-2022.

To what extent could this burden the capital markets?

In our view the monetary environment will remain expansionary and thus supportive for the capital markets, albeit no longer quite as positive as from spring 2020 to summer 2021. Overall, this should lead to slightly rising interest rates, which is also what we have aligned our portfolios to.

What does this mean for the mixed fund DJE - Zins & Dividende where you have to hold at least 50 percent in bonds?

At present, we only hold bonds with very short durations, which are less than two years after hedging. Thereforerising interest rates are not only negative for us.

Why would that be a positive factor?

We could then reinvest the free cash at a higher interest rate, so that the average yield of the bond portfolio of currently just under two percent should be higher again in the future.

An interest rate of almost two percent is currently comparatively high. How do you achieve this?

We have a clear preference for selected corporate bonds and avoid negative-yielding government bonds from the eurozone. Instead, we selectively mix in bonds from other currency areas, such as recently from Norway.

How is the equity side of DJE - Zins & Dividende currently invested?

Currently we have the highest absolute allocation in companies from the sectors technology, healthcare and chemicals, although we have underweighted technology stocks compared to the broad equity market. In the technology sector the focus is also on stocks that rely on share buybacks rather than dividends.  Share buybacks are generally more common among U.S. companies than European companies. However we are currently cautious on highly valued growth companies that are not expected to generate profits in five to ten years.

DJE - Zins & Dividende turned ten in February 2021. What is your aim for it in the future?

In general we would like to build on the returns achieved in the past. Even stronger is our ambition to preserve capital and outperform the market when the stock markets go down. In the crises of 2011, 2015/16, 2018/19 and 2020 we succeeded well in doing this and looking forward we would like to achieve this again.

Fund profile DJE – Zins & Dividende


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 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. A summary of investors' rights can be obtained free of charge in English in electronic form on the website at https://www.dje.de/de-en/summary-of-investor-rights. The funds described in this marketing document may have been notified for distribution in different EU Member States. Investors' attention is drawn to the fact that the relevant management company may decide to withdraw the arrangements it has made for the distribution of the units of its funds in accordance with Article 93a of Directive 2009/65/EC and Article 32a of Directive 2011/61/EU.