Stock market experts consider October to be the month in which losses are most likely. This year has once again appeared to prove this theory correct. From an economic perspective, the situation does not appear too bad in Europe, Japan, or the United States. Indeed, the US economy is the strongest it has been in a long time. But once again, political developments are dampening the mood of a number of investors.
It is likely that many an investor furrowed their brow even more when the EU Commissioner for Economic and Financial Affairs, Pierre Moscovici, announced that the Italian budget would be rejected. Trouble is also brewing in other areas: Brexit is dragging on, and France’s beacon of hope, President Emmanuel Macron, is becoming ever less popular. The differences between the USA and China in their trade war are also far from being resolved. After the US midterm elections in November, the conflict could escalate once more – and put pressure on the stock markets again.
Markets again more shaky
In today’s troubled waters, investors’ top priority should be to minimize risk. This is a view also shared by the DWS investment strategists. In their view, equities are still the most rewarding asset class. Nevertheless, they believe that diversification and risk management makes sense.
A proven way to manage risk is to invest in multiple asset classes, for example in equities, bonds, and real estate. Global diversification is also sensible. With the right investment fund, private investors can also put together a diversified portfolio.
What multi-asset funds can achieve
An even easier way to diversify a portfolio is by using mixed funds and flexible multi-asset funds. With a balanced mixed fund, the investment capital is broadly distributed across different countries and asset classes. If market prices change course, these extremely flexible funds can respond quickly, and the investment focus can be reweighted.
DWS Concept Kaldemorgen: focus on risks instead of only on opportunities
Some mixed funds employ these and similar concepts in order to target a performance that is as independent of the markets as possible – even in turbulent times. One of the most renowned funds in this category is the DWS Concept Kaldemorgen fund. Its distinguished and highly experienced fund manager Klaus Kaldemorgen and his team have been following a risk-averse strategy since 2001. Kaldemorgen focuses closely on the risks instead of only on opportunities.
This also becomes apparent when considering the asset classes he invests in. While the fund invests significantly in equities (approximately 36 percent as at the end of September 2018), it also invests in bonds, commodities, and some other asset classes in order to keep the risk considerably more diversified than is the case for pure equity funds. The fund does not have a local focus. The main country for equities in the portfolio is the USA, with around 10 percent (as at September 30, 2018).
Targeting positive returns in all market phases
In addition to broadly diversified assets, hedging strategies are used. The ultimate aim here is not to achieve the highest possible return, but primarily to generate a regular positive return. For this purpose, the fund management team aims to restrict the maximum percentage loss to a single-digit figure. The volatility of the fund should also be kept clearly in the single-digit range.
Kaldemorgen describes his job as follows: “I want to create added value for investors. We try to generate a relatively high and, above all, positive return with an appropriate level of risk.” [1]
The three-step risk concept of DWS Concept Kaldemorgen
- The fund portfolio is put together following a strategic allocation and risk assessment process.
- The next step involves minimizing further risks, such as exchange rate fluctuations, through tactical positioning using derivatives.
- In the last step, the finished portfolio is monitored on a daily basis against a risk model in order to be able to respond in the event of any changes in conditions. This means that during weak market phases, a hedging strategy can be employed to help avoid major losses.
“DWS Concept Kaldemorgen aims to provide investors with risk-controlled access to the equity markets. Based on a high level of flexibility and sophisticated risk management, I want to generate positive returns for investors while taking account of their comfort zone with respect to risk,” says Kaldemorgen of his fund concept.[2]
Despite this somewhat defensive positioning, the fund is in principle subject to market-, sector-, and company-related price fluctuations. The value of the fund’s units may fall below the purchase price at any time.
