Multi Asset Strategies: A Case for Active Asset Managers

By Dr. Jan Ehrhardt, Deputy CEO de DJE Kapital AG and fund manager of the DJE – Zins & Dividende.

Multi-asset strategies have become very popular because they can offer an attractive risk-return profile through a sensible diversification. Spreading the risks as well as disciplined rebalancing benefit investors over time. Multiple asset classes in a single portfolio offer greater and more flexible investment scope. Buy-and-hold returns, however, are likely to be below the required return, so allocation and selection alpha are essential.

Optimized weighting of asset classes with low correlations is a good starting point for a multi asset portfolio. Correlations, however, become visible only in retrospect. As a result, historical correlations are of only limited benefit when constructing a well-diversified multi-asset portfolio, as correlations can and will change significantly over the long term. These changes in correlations usually do not just happen out of the blue. The fluctuation of asset prices can be explained mainly by changes in economic growth, inflation, and central bank policies of major economies such as the U.S., the Eurozone and, increasingly, China. The correlations or behavior of asset classes in relation to each other is also influenced by these factors.

Anticipating the changes in the macroeconomic environment as well as central bank policy and positioning oneself accordingly to benefit from these changes or to prevent damage as far as possible is, among other things, the task of an active asset manager. The strategic asset allocation considers the changes in the global economies and overweights or underweights asset classes in his or her fund based on one´s “macro view”. With strategic as well as tactical asset allocation, an active manager can achieve the best possible reaction to the changes in the macroeconomic and monetary conditions. Tactical asset allocation is often implemented using derivative instruments such as equity index futures, which allow the fund manager to hedge against short-term fluctuations in financial markets. Furthermore, active duration management as well as tactical hedging of currency risks are essential tasks in a multi-asset context. With these skills, an experienced asset manager can offer investors attractive returns at a comparatively low volatility or “risk”.

How does DJE manage the DJE – Zins & Dividende?

The DJE – Zins & Dividende is a balanced fund managed independently of benchmark requirements. The fund pursues the absolute return idea with the aim of avoiding losses as far as possible. Differentiated weighting of the asset classes bonds in combination with high-dividend and high-substance equities aims for regular income and the most sustained positive performance possible with low volatility. In selecting equities, the fund management takes into account recurring dividend payments as well as investor-friendly corporate policy with capital returns and share buybacks (total shareholder return). Stock selection aims for an above-average dividend yield relative to the market; however, the fund may also include stocks that do not currently pay a dividend. On the bond side, in-house research generates promising investment ideas from all market segments. The fund invests primarily in debt instruments from public issuers and companies with very good to good credit ratings

The basis for asset allocation is DJE´s analysis method using fundamental, monetary and market technology indicators. In the current market environment, the fund focuses on a globally diversified mix of high-dividend stocks and bonds that have the potential to absorb losses in the higher yield environment. The fund’s flexible investment approach allows it to adapt quickly to constantly changing market conditions. To reduce the risk of capital fluctuations, at least 50% of the fund’s assets are permanently invested in bonds. The equity exposure is at least 25% and is limited to a maximum of 50%. Currency risks are hedged opportunistically.

Note: This is a marketing advertisement. Please read the prospectus of the relevant fund and the PRIIPs KID before making a final investment decision. This also contains the detailed information on opportunities and risks. These documents can be accessed free of charge in German at www.dje.de under the relevant fund. A summary of investor rights can be downloaded free of charge in German in electronic form from the website at www.dje.de/zusammenfassung-der-anlegerrechte. All information published here is for your information only, may change at any time and does not constitute investment advice or any other recommendation.