German selectors discuss yields, multi-asset and emerging markets

Selectors at Deutsche Bank, Union Investment and Franklin Templeton have discussed remedies to the challenge of low yields, the value of multi-asset and chances in emerging markets.

Looking at recent stock market highs, scepticism has crept up among selectors based in Continental Europe’s biggest financial centre Frankfurt.

“I was surprised by the resilience in the equity markets”, says Johanna Handte, head of the Fund Selection and Multi Asset Core division at Deutsche Bank Asset & Wealth Management.

Handte chooses funds for roughly €6.5bn worth in assets at the German institution. She expects a correction in the short term, bringing valuations back to “healthier” levels after a stock market rally that lifted the German Dax to new all-time highs in May – especially as the earnings season has “actually disappointed”.

“In many cases good earnings came only from cost cutting over the past quarters. But the companies cannot follow this strategy forever.”

Alas, investors seem not to care for the sustainability of earnings in the current environment, but rather flock into stocks because of loose monetary policy, says Handte.

For the longer term, equities might still be the place to be. “Stocks are the real ‘real assets’. A lot of the other asset classes are based on promises and trust,” she adds.

However, the strategic bullishness on stocks is met with selection challenges in various asset classes. Fund managers, for instance, in the global equities peer group “have had a rough time. Brief and brutal moves such as in the Japanese equity market have caught many managers on the wrong foot.”

Value investing, as another example, was out of favour for the last three years. In the area of emerging market equity funds, the soft closings of some flagship products will create the need to look for new managers. For example, Handte’s interest was drawn to the quantitatively oriented Robeco Conservative emerging markets strategy.

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