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Press statement

Ethna-AKTIV: flexible management proves its worth during the Covid-19 crisis

Munsbach, 9th June 2020 – COVID-19 has a firm grip on both the economy and financial markets worldwide. At the beginning of this year, a further unknown factor was added to the already considerable challenge for investors to generate decent returns in the low interest rate environment of recent years. This came in the form of a pandemic, the containment of which caused the biggest slump in growth in decades and which also brings with it a high degree of long-term uncertainty. The active investor community has rarely been so divided in its perception of risk and, accordingly, in its positioning as it is today. While the optimists rely on the constructive power of capitalism, the pessimists fear its demise. The unprecedented monetary and fiscal aid packages implemented so far only widen the gap between bulls and bears and their respective arguments.

A question of opportunities…

This black-and-white view does not help the client who entrusts his assets to professional investors. In such an uncertain environment, it is particularly important not to look for investment solutions at the extremes, but between them. Now, the intention here is not to advocate an investment in the proverbial grey area, but merely an investment approach that refrains from placing the fund resources in just one easily marketable scenario or asset. Actively managed multi-asset funds, such as ETHENEA’s Ethna-AKTIV, offer the client an attractive opportunity to participate in the opportunities on the global capital markets, without losing sight of the risks. When structuring the fund, the experienced Portfolio Management Team around company founder Luca Pesarini consciously focuses on the combination of several asset classes. On the one hand, splitting the fund's resources across bonds, equities, currencies, and commodities already provides a natural diversification – along the lines of "not putting all your eggs in one basket". On the other hand, the asset allocation can both identify and execute several - ideally uncorrelated - investment ideas and be dynamically adapted to the prevailing environment. In practice, this means that asset classes that, due to their attractive risk/return ratio, are convincing in the expected environment are given a higher weighting. Experience has shown that this attractiveness is not found in the aforementioned extreme positioning, due to the associated risk, but instead somewhere in between.

…but also of style

This type of dynamic allocation is only possible with a management style that is essentially characterised by three traits: active, flexible, and fundamental-based. In this context, flexibility means that the Ethna-AKTIV Portfolio Managers are not limited by fixed allocation guidelines - such as the classic 60/40 portfolio - nor are they guided by known benchmarks when making their selection. The decisive factor for the investment decision and the portfolio weighting is the risk/return ratio derived exclusively from a fundamental-based scenario analysis. The result is a portfolio that is as robust as possible, focused on a few core convictions. This mental optimisation process takes place on an ongoing basis. As long as there is no fundamental change in the initial situation, the portfolio does not need to be substantially adjusted. However, if an exogenous shock, such as COVID-19, necessitates a complete reassessment of the situation, this process is ideally suited for a rapid and active response to the changes, reaching the necessary conclusions and realigning the portfolio accordingly.

It’s all about the mix

From a risk management perspective, during the current crisis this meant a rapid reduction of the more than 40 percent equity quota for the Ethna-AKTIV, as well as a strategic reallocation in foreign currencies and gold. That the equity exposure is a low double-digit percentage at the moment, reflects the Portfolio Management's current rather sceptical attitude towards the global growth prospects over the next 12 - 18 months. However, this does not mean that they do not see any opportunities on the equity markets. It merely means that, with the current uncertainty about the consequences of the global recession, they do not want to invest in a binary manner on a rapid return to the previous growth trajectory. Instead, the Portfolio Managers use the flexibility inherent in the Ethna-AKTIV’s multi-asset nature to select alternatives for generating performance. For example, exposure is built up via increased currency positions, as this is not necessarily dependent on future corporate profits. Because of this diversification, the portfolio can achieve an attractive performance even in the current environment, without belonging to the aforementioned camps of optimists or pessimists. After all, reality is usually somewhere in between.