Your questions, our portfolio managers' answers

Are multi-asset funds still attractive? Especially in the current situation, actively managed funds seem to be paying off. On the one hand, there is a split in the equity markets. One side is enjoying a boom, while the other is having problems with earnings and growth. Most bond yield curves are still inverted, which makes shorter-dated bonds appear more attractive. If you are looking for a robust portfolio, you should not only consider different strategies, but also look at the focus of portfolio management.

Ethna-AKTIV

• Why do different manager/VV strategies make sense?
• Why should an investor choose a multi-asset fund now, when you can generate a guaranteed return of over 4 or 5% only by directly investing in government bonds?

Ethna-DEFENSIV

• You have recently gradually increased the duration of the Ethna-DEFENSIV. Given the current interest rate situation, how will you proceed? Will you increase the duration even further?
• The Ethna-DEFENSIV is mainly invested in bonds denominated in EUR. Are you also considering adding bonds denominated in USD to the portfolio?

Ethna-DYNAMISCH

• The stock market rally seems exaggerated. Where do opportunities still exist?
• Can you give a specific example of a success story in the Ethna-DYNAMISCH portfolio?
• How many stocks do you hold in your portfolio?

Ethna-AKTIV

Why do different manager/VV strategies make sense?

Similar to dealing with different asset classes or individual shares, it naturally makes sense not to put all your eggs in one basket when it comes to asset managers. Here, too, it is important to diversify between the various asset managers. Not everyone works in every market phase. And not all providers work in the same way. For a robust portfolio, it is therefore important - and this is the crucial point - to invest in different approaches. In purely quantitative terms, this means that the correlation between the results of the different providers should not be too high, at best it is even negative. From a qualitative point of view, various elements can lead to the desired diversification effect. Without claiming to be exhaustive, one can simply diversify in the various dimensions of portfolio management between discretionary or quantitative decision-making, a micro or macro approach and between static or dynamic portfolio management. It is important to realize that there is no absolute right or wrong here. In principle, however, it is possible to determine ex-post the risk (e.g. volatility or drawdown) with which the performance of a diversified portfolio of different VV approaches is achieved.

Why should an investor choose a multi-asset fund now, when you can generate a guaranteed return of over 4 or 5% only by directly investing in government bonds?

This question can only be answered meaningfully if you think about the profile of the investor responsible. There are many dimensions to consider. What stage of investment are they at? What time horizon and what return expectations are we talking about? Are they interested in real capital preservation or capital growth? What temporary fluctuations and price setbacks can they withstand?

However, it should be noted that with inflation currently at 2.6% in Europe and a yield on two-year German government bonds of 2.8% (10-year at 2.4%), there is not much guaranteed yield left in real terms. For US government bonds, there are only a few basis points more yield after currency hedging. What remains, however, is a portfolio with no chance of participating in share price rises and with the reinvestment risk for its return, which is only guaranteed for a limited period. The latter means that if interest rates are lower at the time of bond redemption, i.e. when the investor has to reinvest, then he has a problem. He could avoid this by either investing in longer maturities (which is not advisable in view of the interest rate risk) or by outsourcing this decision regarding interest rate sensitivity to experienced portfolio managers. Which brings us back to the starting point of the question. The moment an investor is aware of his risks regarding reinvestment and missed opportunities, he cannot avoid a multi-asset portfolio. If he does not want to constantly worry about the necessary reallocations, adjustments and risk management, this is his solution: an actively managed multi-asset fund such as the Ethna-AKTIV.

Ethna-DEFENSIV

You have recently gradually increased the duration of the Ethna-DEFENSIV. Given the current interest rate situation, how will you proceed? Will you increase the duration even further?

Yes, we have increased the duration to just over 4. This was essentially done by buying futures contracts on 20-year US government bonds. This point of the yield curve is particularly attractive as it has the classic rising shape (lower yields for shorter remaining maturities). However, most yield curves are still inverted, which means that shorter-dated bonds remain attractive. Like central banks, our decisions are data-driven. If there are attractive opportunities, we will again invest more in longer-dated bonds. If not, then we won't. Conversely, we will also take profits when it seems opportune. But the basic direction is clear. The central banks are on a path of lowering interest rates, albeit slowly. We will therefore gradually swap our shorter-dated bonds for longer-dated bonds and thus increase the duration. We are trading opportunistically with our futures positions. If yields at the long end of the yield curve fall sharply, we are prepared to take profits at any time.

The Ethna-DEFENSIV is mainly invested in bonds denominated in EUR. Are you also considering adding bonds denominated in USD to the portfolio?

We currently feel very comfortable with EUR-denominated bonds. Although bonds denominated in USD pay higher yields and could benefit more from interest rate cuts by the Fed when it starts to do so, an investment in a USD asset always means a currency risk or a currency opportunity. We do not want to take this risk at present. However, a simultaneous currency hedge is still very expensive, so we are currently not convinced by a hedged investment either. We will only start investing in USD-denominated bonds again when we are certain that the US dollar will appreciate against the euro.

Ethna-DYNAMISCH

The stock market rally seems exaggerated. Where do opportunities still exist?

The stock market rally since the end of October 2023 is truly remarkable. However, we do not believe it is excessive. Two things are important for its classification. First, it has emerged from a relatively depressed market phase with low valuations. Second, it is divided into two parts. On the one hand, there are the index heavyweights, which generate the majority of profits. On the other side are the second- and third-tier stocks, which are clearly lagging behind. This discrepancy becomes apparent when comparing the performance of the market value-weighted and the equally weighted S&P 500, but also in Germany when comparing the DAX and MDAX. This split is fundamentally justified, as the index heavyweights are benefiting from the AI boom, which is not only causing share prices to rise, but also the fundamentals. By contrast, medium-sized and smaller companies are struggling somewhat in terms of sales and earnings growth. In this respect, we currently consider the stock markets to be relatively fairly valued. We see attractive opportunities in selected companies rather than in general industries or styles. The answers to the following questions address this topic further.

Can you give a specific example of a success story in the Ethna-DYNAMISCH portfolio?

A recent example of our success is our investment in ResMed. The US medical technology company is the market leader in ventilators for patients with obstructive sleep apnea (OSA). As overweight and obesity are common risk factors for OSA, the success of novel GLP-1 weight loss drugs in 2023 has put significant pressure on ResMed's share price. We considered the negative share price reaction to be excessive and bought ResMed in September/October at an average price of around $145 and increased it to a top 3 position (weighting of 3.1%). In the meantime, the company has overcome concerns about the headwinds from GLP-1 and is even positioning itself as a net beneficiary. At an average price of $200, we realized profits and halved the position. At the current price of around $210, the return on the remaining position (2.3% weighting) is around 45%.

ResMed is representative of our selection focus. We concentrate on quality stocks with structural growth and use attractive valuations to enter the market. We regularly report on our investments on LinkedIn in the #derAktienexpress format, where you can find further success stories.

How many stocks do you hold in your portfolio?

In principle, we target a range of 30 to 40 individual stocks. This means that we are well diversified on the one hand and can also set accents in our selection on the other. There are currently 33 individual stocks in the Ethna-DYNAMISCH. Our focus is clearly on quality stocks with structural growth, which we hold for the medium to long term. As a result, portfolio turnover tends to be low.