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Your questions, our portfolio managers' answers

Ethna-AKTIV

Most multi-asset funds are quite stiff in their structure and in the way they (are allowed to) change their allocation. Is flexibility the secret of success of the Ethna-AKTIV?

A certain degree of flexibility is the basic prerequisite for the activity that we envisage and that our clients value. Rigid quotas and a fixed asset class mix are at odds with our goal of constructing an optimised risk-adjusted portfolio. Flexibility means that we are not guided by peers or benchmark indices. At the same time, the basic structure of the Ethna-AKTIV portfolio is very simple and transparent. For both equities and bonds, we rely on a well-selected basic portfolio that skims off the premiums available on the market. However, the highest degree of flexibility is provided by the dynamic management of the quotas. Depending on our macroeconomic assessment on the one hand and our interpretation of market dynamics on the other, the net equity ratio, interest rate risk and foreign currency risks are actively and flexibly managed. Last but not least, the results of recent years are proof of the success of our approach. While 2022, which was a perfect storm for multi-asset investments, was mastered well, particularly through duration management, attractive gains were realised in 2023 thanks to a timely increase in the equity allocation.

Over the past two years in particular, the fund has performed as expected and desired by investors. Are there lessons learned from past challenges that are being considered in the investment strategy to ensure that this remains the case?

Absolutely! The good results of recent years are partly due to the continuous sharpening of our investment process. Although there have been no major changes in principle, we have realised that less is sometimes more. What does that mean in concrete terms? Especially in a small team, it is important to focus more on the things that you are really good at. In case of doubt, this results in fewer but clearer positions. As a consequence, there may be less diversification. In our view, diversification takes place in the right places. Examples of this are, on the one hand, the implementation of a stable basic portfolio and the focus on accentuated management of the equity allocation.  On the other hand, there is the consistent focus on a few but relevant currencies in FX management. A second slight adjustment relates to quota management. Here we have accelerated the process in order to at least bring the ratio back into the normal range following a risk management measure. All corrections in the last decade were processed relatively quickly. Remaining in defensive mode for too long was not rewarded. We assume that this will remain the case for the foreseeable future.

Ethna-DEFENSIV

At present and in the recent past, the fund has benefited from the current interest rate environment - how will the fund behave if it moves in the opposite direction in the long term?

In November 2022, the yield on 10-year German government bonds fell below the yield on 2-year government bonds, known in the financial industry as an inverted yield curve. Such a curve is usually a harbinger of recession. Today, 15 months later, the yield curve is still inverted. The significant slowdown in inflation towards the end of last year has not only pushed the yields lower but has also led investors to assume that the ECB will soon cut interest rates. This market environment, i.e. the dramatic fall in 10-year bond yields (around 3.8 % for US government bonds and 1.9 % for German government bonds), contributed to a performance of 3.66 % (T class) in the Ethna-DEFENSIV in 2023 and the fund achieved a new all-time high in 2024. But does the inversion of the yield curve still mean that a recession is around the corner?

No. We assume the yield curve will deinvert after the ECB starts cutting interest rates, but a recession can be avoided. This means that we do not believe that further decrease in 10-year German government bond yields is a realistic scenario. On the contrary, we saw the bottom in yields in December at 1.9 % and now long-term yields are rising again. Falling yields are now the privilege of German government bonds with a remaining maturity of less than 3 years. We are therefore primarily positioned at the short end of the yield curve and have been opportunistically making use of short positions in futures on 10-year government bonds recently.

Ethna-DYNAMISCH

Until now, most of the "Magnificent 7" have been missing from the Ethna-DYNAMISCH. Was this a deliberate decision? How will you position yourself in relation to these stocks in the future?

With Google's parent company Alphabet, we actually only had one of the Magnificent Seven in our portfolio in calendar year 2023. The reason lies in our absolute approach. We assess the attractiveness of each stock regardless of its market relevance. While the Magnificent Seven are undoubtedly great companies, there have always been investment candidates with a more attractive overall profile in the past. Nevertheless, we were able to learn a lesson from the one-sidedness or concentration of the market last year. In future, we will pay explicit attention to areas that dominate the market due to their sheer size and slightly lower the investment thresholds for corresponding individual stocks/industries. An initial concrete result of this development is our new positions in Microsoft and Amazon, each with a weighting of around 1.5 %, which we realised in January. It is true that both stocks "only" fulfil around 90 % of our investment criteria. Nevertheless, we believe they are the most attractive stocks among the Magnificent Seven alongside Alphabet. With this further evolution of the Ethna-DYNAMISCH, we want to ensure a continuous categorisation of market-moving themes and industries. At the same time, our selection standards remain very high. We are not index investors and we want to keep it that way.

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