DekaBank weathers the storm
‘Don’t lose money’ is a useful philosophy for turbulent markets, but many managers have forgotten it, DekaBank’s fund-based investment team suggests.
It is in the current turbulent global markets that DekaBank’s understanding of its fund of funds clients might prove particularly helpful.
Volatility spiked 50% some days in August, markets often slumped 5%, some stocks lost 10% and investors often made sharp reactive reallocations.
Amid this, Steffen Selbach, head of fund-based asset-management at DekaBank, says knowing how a client regards the markets and investing in them is crucial.
He and his team oversee €27.8bn in fund-based asset management products.
Rule number one: ‘Don’t lose money’.
A fairly straightforward thesis, though difficult to achieve in some market conditions, and forgotten by many fund of funds managers, whose golden rule might be ‘don’t lose more than my benchmark or the general market’.
Change in attitudes
According to Selbach, clients’ attitudes have undergone a fundamental change from the financial crisis.
“Much of the fund industry has not taken into consideration what has changed in investors’ minds. Instead, managers still rely on ‘old-school investments’, relative to benchmarks, and mechanistically using asset classes.
“While this may be appropriate to secure product accuracy and product veracity in classic sector or country funds, it does not work in asset management products.”
Selbach says few managers take high cash positions (for instance, 60%) to protect profits in crises, because deviating from index means risk versus what ultimately determines managers’ pay. But losing 43% on global equities in 2008 (according to the MSCI All Country World index) was a disaster in absolute terms for investors.
“Clients may expect a fund of funds manager, in a time of crisis, to go down to 40% equity exposure. We see a little bit of it, but managers are not as free in their thinking as investors need them to be sometimes.
“Even in the area of classic sector or country funds, you see a certain change happening in the sense that more managers tend to reshape their approach to investment style.
“A lot are managing more day by day, month by month, as a lot of clients are not satisfied losing 8% when markets fall 10%. Some tracking errors have increased dramatically in the past couple of years in equities and in bonds.”
DekaBank’s retail customers can select from five different risk profiles in the funds of funds (Dachfonds). From this flows asset allocation strategy.
The team uses a top-down fundamental approach to determine asset allocation. It can invest in funds and use derivatives – for example, to protect portfolios or take tactical positions.