Smart diversification and tactical growth trends
In an interview with FondsSupermarkt, Moritz Rehmann, fund manager of DJE - Multi Asset & Trends, explains how he uses the possibilities of a multi-asset portfolio to make the portfolio robust through diversification on the one hand and to prepare it for future growth opportunities on the other.
Looking only at the bottom line of fund performance since our last conversation in July 2024, it seems that not much has changed. In fact, the equity and bond markets rose sharply until President Trump's tariff declarations at the end of February, supported by slowly declining inflation and moderately falling key interest rates, only to fall significantly since then. How have you adjusted the DJE - Multi Asset & Trends fund portfolio that you manage to the difficult environment in recent months?
The DJE – Multi Asset & Trends portfolio performed very well until the end of February 2025 and gained further at the beginning of this year due to the advance praise for the Trump administration. However, the already high volatility expectations towards the new US government were then far from sufficient in view of the trade policy course adopted by US President Donald Trump. The US market in particular corrected.
However, the correction was not limited to equities as an asset class. The US dollar and the US bond markets also came under pressure. However, this phase also revealed the strength of a global mixed fund. Broad diversification has had a particularly positive impact on performance since the beginning of the year. Gold contributed to stabilization with a portfolio share of 8%, and the same applies to bonds, which account for around 22% of the portfolio. Bonds denominated in euros in particular - around 10% of the portfolio - also contributed to stabilization. We also benefited from the lower US allocation (currently 25% of the portfolio) in our equity portfolio compared to prominent indices such as the MSCI World. We were able to absorb the correction much better with equities from Europe and Asia. Relative to a neutral equity allocation of 75%, the fund is also even more defensively positioned in favor of gold and bonds with currently around 66% equities and is in a good position to increase the equity allocation when visibility improves again.
Are you also making greater use of hedging through forward transactions in the current situation?
In fact, the current environment, with some sharp short-term swings, lends itself to hedging transactions. However, with the already reduced equity allocation, our focus here is particularly on the US dollar, where we have hedged part of the portfolio. Since the beginning of the year, however, we have also concluded hedges on equity indices, which we have since closed again with a positive contribution.
Donald Trump's second presidency is already seen as a turning point for the global economic order after the first three months. Do you already see an impact on the trends you have observed in the equity section of the fund?
We see the risk of a return to a regional trade order characterized by barriers. This would have detrimental consequences for many market participants, as supply chains would then be shaped according to political considerations rather than economic aspects. However, this is also where the first differentiating feature becomes apparent. At the moment, it is primarily about the physical movement of goods. Many of the companies in the portfolio, or the trends on which they are based, are heavily service-oriented or consist of digital goods. We do not see any acute threat to development here. The same applies to financial service providers such as stock exchanges, for example, which are benefiting from the current high volatility. The situation is more difficult for consumer goods. Here we invest primarily in premium stocks, i.e. in companies that are in a position to pass on potential tariffs to customers as their products or brands have unique selling points.
Financial and insurance stocks, which you added at the time as a special "tactical trend" (after years of low interest rates), formed the strongest sector cluster in your fund portfolio at the end of March. The sector has significantly outperformed the broad market in recent months. What are the current earnings prospects in the areas of credit, interest rate business and investment banking, and what about the risks?
We need to differentiate somewhat here. Insurance companies can perform very well in an environment in which there may be an economic downturn. They benefit from a US interest rate level that remains higher for longer, but also from the continuing price increases for insurance policies. Banks are currently having a harder time, which is why they only make up a small proportion of this cluster or come from the Asian region. The strong volatility on the market in particular has closed the window of opportunity for market transactions such as IPOs, which was still very favorable at the beginning of the year. In this respect, we are very selective when it comes to banks. The main beneficiaries in this cluster are currently the stock exchange operators, who are benefiting from the increased volatility.
The technology sector in particular has been hit by the uncertainty on the stock markets. How do you assess the current prospects and valuations of the IT sector - even after the countless discussions about DeepSeek and AI?
There is a wide variety of trends and tendencies here. It was good not to be too heavily involved in the Magnificent 7, where investors' money was too one-sidedly allocated. Overall, however, the technology sector as a whole entered a correction very early on. We now see attractive valuations for very resilient business models and are also buying selectively again. However, we remain cautious in the hardware sector in the context of AI, as there is a risk that investments will be postponed, especially if the expected monetization of the services does not occur in the near future.
What is the situation in the healthcare sector, which seems to have fallen out of the spotlight for some time now?
In this segment, which is always affected by political desires (budget planning), we are currently holding back due to the cost savings being sought in the USA.
Apart from AI, the defense sector has recently received the most attention. What role do defense stocks play with regard to your thematic approach, but also with regard to the expected cash flows and the sustainability criteria you take into account?
Defense stocks do not play a role in our current equity universe. We see sufficient investment opportunities outside this segment, e.g. in the area of IT security, where we can benefit from comparable trends.
Infrastructure investments - just think of the recent decisions by the German Bundestag - could take on additional significance in economies that are less export-oriented than domestically oriented. Do you share this assessment, and what does this mean for DJE - Multi Asset & Trends, where infrastructure is one of the trends observed?
Infrastructure is one of the segments in which we see high long-term potential. However, it is often difficult to assess the investment horizon. We currently see stocks from the construction materials sector in the right regions as promising investments, as well as manufacturers of components for energy infrastructure.
Let's move on to the bond side. Where do the central banks currently stand in their efforts to combat inflation on the one hand and prevent a global recession on the other? In which areas of the global bond markets, which remain volatile, do you currently see the most favorable risk/reward ratio?
Due to possible cyclical risks, we currently see the better risk/reward ratio in government bonds, also because we appreciate the liquidity of these securities in difficult market phases. The central banks of the USA (Fed) and the EU are currently in very different situations. The ECB is likely to cut its key interest rates further, while the Fed is confronted with rising inflation and a possible economic slowdown and will probably take a wait-and-see approach for the time being. For investors from the eurozone, there is also the exchange rate risk. In this respect, we believe we are currently well positioned with a balanced portfolio with a moderate duration of around 4 years. Liquidity and creditworthiness should currently be the focal points for bonds.
Will the United States be able to resume its previous role as the largest and most productive capital market in the foreseeable future?
US policy demands a high degree of "tolerance" from international investors with regard to the US capital market. Much will depend on whether confidence can be regained that has recently been lost. This will take time. The next test will come as early as the fall when Jerome Powell is replaced as Fed Chairman and the possible candidates are discussed. A great deal of trust in the USA as the No. 1 capital market could be gained here, but it could also be destroyed by political influence.
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