All-weather strategy for challenging times

Sebastian Kösters: Our fund is an “all-weather fund” designed for investors who are both defensive and sustainability focused. It aims to participate in global return opportunities while maintaining a moderate risk profile. In turbulent times, we do not want investors to be fully exposed to risk, but we do aim to capitalise on investment opportunities that arise. The fund is strategically long-term oriented and tactically adjusted in the short term. In determining our investment universe and evaluating individual securities, we employ a holistic sustainability approach.

What experiences inform your approach?

Our extensive experience in sustainable investments gives us a competitive edge. Particularly in the multi-asset sector, our strength lies in our long-standing experience in managing investment mandates in the church sector. Today, with nearly EUR 3 billion in assets, the multi-asset segment represents about 50 percent of our total assets under management.

The world has changed in recent years due to inflation, interest rate hikes, and increasing geopolitical tensions. What does this mean for your investment strategy?

As active advisors, our role is to identify attractive investments in every market phase. However, it is clear that current times are challenging. Through broad diversification and our focus on sustainability, we aim to achieve an attractive return-risk profile for investors. This is also accomplished by expanding our asset classes to include real assets and alternative investments, in addition to stocks and bonds.

Doesn’t constantly reacting to market fluctuations result in high transaction costs?

Risk management plays a key role in our strategy. Although we have the flexibility to timely react to market downturns, it is not advisable to sell the fund's physical assets for cost reasons. Instead, we use effective and cost-efficient instruments to hedge our holdings. For example, last year, we fully hedged the interest rate risk associated with our bond holdings without selling them. This strategy successfully protected our investors from substantial price drops.

For several months now, bonds have been offering interest again. What income distributions can fund investors anticipate?

Our objective is to preserve a steady distribution yield, which stood at 2.8% in the previous fiscal year. We strive to keep this yield within a range of 2.5% to 3.0% going forward. In the current interest rate environment, achieving this target should not pose any difficulties. Additionally, if needed, the fund now also has distributable reserves that we can access.

Mr. Kösters, as the year comes to an end, your outlook for 2024 is of great interest. What can investors expect?

At present, the prospects for global equities are positive, assuming the widely expected recession does not materialise. In Europe, some countries are underperforming, including Germany, prompting us to underweight European stocks currently. We do not foresee any further significant increase in inflation, and thus we view that central bank interest rate hikes are mostly behind us. For the bond market, this translates to stable rates for short-term maturities, and potentially rising rates for longer maturities, especially in the eurozone.

Complicating this baseline scenario are the ongoing geopolitical tensions, which require short-term responses. In the first quarter of 2024, we plan to expand our multi-asset strategies through a more flexible approach, free from investment quotas. This strategy is likely to appeal to investors seeking to capitalize on return opportunities in the capital markets while relying on systematic risk management.

Footnote*: As of 30 September 2023.