We want to revolutionise the German investment market

Dr. Florian Mann: As indicated by the name of the fund, our goal is to provide our investors with an ambitious investment experience. This means, in addition to aiming for a high target return, also a very balanced risk-return ratio. To quantify: in the first fiscal year of the fund (from 30 November 2022 to 29 November 2023), we achieved an 8.5% return with only a three percent volatility and a maximum drawdown of just minus one percent (past performance is not indicative of future returns).

During the same period, the stock markets showed significantly weaker performance in terms of volatility and maximum drawdown. Therefore, we also call our approach the concept of ‘smoothed returns’. Our ultimate objective is to address the risk aversion of German investors, facilitating a more relaxed way to wealth building over various market phases, something that traditional equity funds or ETFs cannot offer.

How does the fund strategy work and what do you do differently with FINLIUM Ambition?

With our fund, we make the asset class liquid alternatives, specifically an options strategy, more accessible to a broad audience. We aim to do this in a more innovative, customer-oriented, and cost-effective way. To implement this strategy, we have developed our own investment technology over the past few years, which almost fully automates the management of the fund. At its core, an algorithm that operates in a systematic and rule-based way, and therefore without emotional influence. To validate this approach, we did intense backtesting with over 100,000 simulations, replicating the price movements of the past 15 years while applying realistic market conditions. The algorithm also passed additional stress tests that simulated scenarios beyond historical price movements and also real-money trading. The results have now been confirmed in practice, as evidenced by the fund’s very stable performance since its launch in November 2022.

How is the return generated in FINLIUM Ambition, and why is it so stable? How is your investment universe structured?

The key to the stable and largely stock market-independent performance is a market-neutral setup. We combine stock index options above and below the current stock market level into what we call a "return corridor". 

As long as the underlying stock markets stay within this corridor, we can earn returns on these options over their duration. The real innovation, however, comes into play during significant market movements: our algorithm consistently monitors risks, optimises the corridor continuously based on the return-to-risk ratio, and dynamically adjusts it to new market conditions. 

Additionally, our investors benefit from the current interest rate hike, earning up to four percent per year. This is because the options strategy only binds a small portion of the fund’s volume. The remaining liquidity is invested in fixed-interest bonds of sustainable companies and governments with very good credit ratings. Here, our technology-based approach pays off again, as our algorithm analyses up to 20,000 corporate and government bonds daily to assess their attractiveness.

FINLIUM aims to “change the investment culture in Germany”. What do you mean by that, and what role do fees play in this?

We want to make sustainable wealth building a daily norm for everyone in Germany. Four out of five people in Germany cannot identify with current forms of investment and we want to change this. Of course, fees, especially when they are not performance-related, play a role. Therefore, we are taking a different approach by keeping ongoing costs low and earning through a performance fee. For our introductory offer (DE000A3DQ202 (AK S)), the ongoing costs are estimated to be only 0.7 percent per annum, and we are even waiving the performance fee entirely. However, in the first quarter of 2024, we will close the S share class for further purchases.

What is your outlook for 2024 and the years that follow?

Despite geopolitical tensions and significant uncertainty, we look positively towards the future. This partly because we have already decoupled the success of our investors from rising stock markets. Furthermore, our algorithm continues to deliver on our value promise despite recent larger market disruptions: In the first fiscal year of the fund, as mentioned earlier, the return was 8.5 percent (from 30 November 2022 to 29 November 2023), but the volatility was only three percent, leading to a notably high Sharpe ratio. In other words, our investors experienced significantly lower risk compared to the stock market to achieve a similar return (past performance is not indicative of future returns). 

We are convinced that our investment technology will bring the future of investment into the portfolios of investors. The rapid technological progress is immensely changing the world of funds to benefit investors. Algorithm-driven investment forms are more efficient, free from human emotions, and therefore superior in the long term. An exciting time lies ahead of us and we are eager to embrace it!