‘Don’t lose money’ is a useful philosophy for turbulent markets, but many managers have forgotten it, DekaBank’s fund-based investment team suggests.
DekaBank also remains very conscious that investor attitudes change in real time, as markets shift - a contrast to many rivals, who seem to presume risk appetite of clients in any one product is static.
Not so, according to Selbach. So, while Rule One remains ‘losing money hurts clients', Rule Two is ‘be flexible as client goals change'.
DekaBank's multi-fund managers aim to preserve cash, and then to beat money market and standard fixed income returns at the least.
"The vast majority of the investments private clients undertake now are in the money market area," says Selbach, "which gives you a good feeling for what they are content with: between 0.2% to 0.4%. So, as a fund of funds manager, you must beat money market returns and market returns of bonds."
But once investors have a ‘cushion' of gains (4% to 6%), they become more adventurous for better returns.
DekaBank's Dachfonds products react to this change of investors' goals.
"At that point, you have to make some kind of market-oriented return - for example, of 20% equities, 80% bonds according to the risk profile the client has chosen," says Selbach.
"We then have to adopt a slightly different investment process because after that, a lot of clients will compare us to money market investments. Then you are compared to capital market performance, and you have to see if you can meet that."
Allocation shifts also occur according to top-down forecasts from macro analysts and to underlying manager performance.
The focus on asset allocation helped steer DekaBank's Dachfonds away from European sovereign debt exposure over the past three to five years, as did falling of yields from sovereign debt over the past decade.
They rotated into credit and emerging markets (EMs). In European equities, emphasis has been on Germany, not the periphery.