"We use our proprietary 'Market Traffic Light' system to manage equity exposure."

Matthias Hink: As a core investment for the broader market, we intend to offer the fund in a commission-based share class in the new year. This will allow us to significantly expand its distribution beyond our home region. Investors across Germany will then be able to use it as a core component of their portfolios.

Matthias Lang: I would like to emphasise that we have always achieved the goal of preserving real capital value, even in challenging market conditions and during periods of low interest rates.

Matthias Hink: As a core investment for the broader market, we plan to make the fund available in a commission-based share class in the new year. This will enable us to broaden its distribution well beyond our home region, providing investors across Germany with a key portfolio building block.

The L&H Multi Strategie UI delivered outstanding performance within its peer group in 2024. What were the key drivers behind this success?

Hink: A key factor behind this excellent performance in 2024 was our stock selection. Despite the challenges faced in 2022, we maintained our positions in technology stocks, which proved to be the right decision. Gold, as the "currency of last resort", remains a strategic position in our portfolio and, with a weighting of nearly 10 percent, was another significant performance driver this year.

Additional contributions came from the fixed-income segment, particularly corporate bonds. We built positions in this area using liquidity during last year’s favourable entry conditions. This year, the fund further benefitted from price support driven by falling interest rates.

Lang: Not just this year, but consistently. Our performance attribution shows that technology stocks have made a significant contribution to the fund's excellent results. We continue to view this sector as a strategic component of the fund's allocation.

The equity exposure of the fund can be actively managed. What range do you typically operate within, and what data do you use to guide this management?
Lang: Looking back over more than one decade, the fund’s equity allocation has been dynamically adjusted between 15 and 45 percent, reflecting its defensive nature. Currently, our equity allocation stands at just under 33 percent.

To manage this allocation, we use our proprietary "Market Traffic Light" system, which is based on five aggregates, including economic indicators, trend-following indicators, and sentiment indicators. Depending on how many of these signals are positive for equities, we adjust their weighting within the fund’s portfolio accordingly.

Your strategy allows you to invest beyond individual equities and bonds. What other options and instruments do you specifically use?

Hink: As part of our strategic allocation to alternative investments, we use instruments that implement market-neutral strategies or strategies with negative beta. We select these products from other investment houses after thoroughly analysing the expertise behind them. During the low-interest-rate phase, these were essential tools for us and contributed significantly to the success of our fund strategy. Currently, we have slightly reduced these positions.

Lang: If we want to establish short-term exposure to specific markets, such as Japan, we can also use ETFs. This applies particularly when the intended contribution to the portfolio in that segment does not depend on the selection of individual stocks.

In sharply declining markets, a hedging strategy can be used to reduce potential losses from equity investments. How do you approach this?

Lang: Hedging is typically carried out using futures on major equity indices. We employ this tool when our "Market Traffic Light" system changes, and we need to quickly reduce the gross equity exposure from, say, 45 to 35 percent, as indicated by the system, to lower the portfolio's equity risk.

Hink: These exchange-traded, highly liquid derivatives are ideal for making the intended quick adjustments to our portfolio exposure. This approach also avoids counterparty risks.

When selecting individual equities or bonds, what are the most important criteria for your selection in each case?

Lang: We apply distinctly different criteria for bond and equity selection. For bond issuers, creditworthiness is our primary focus. The key question is whether we can reasonably expect interest payments to be made and the principal to be repaid at maturity. For equities, we prioritise the much-discussed "economic moat". This includes factors such as experienced management, high return on equity, low debt levels, an attractive business model, and clear competitive advantages.

It’s entirely possible for us to buy bonds from a company while avoiding its shares. A current example is Volkswagen. We can reasonably assume the company will meet its debt obligations. However, the business model is currently under pressure, and clear competitive advantages or high return on equity are not evident.

Hink: For us, it’s not just about numbers – common sense also plays a crucial role. We have decades of capital market experience during which we’ve seen companies, once considered market leaders, fail to adapt to change – Nokia being a prime example.

That’s why we bring together all our observations to form as complete a picture as possible. Sometimes this even includes impressions from everyday life, such as long queues outside shops or emerging fashion trends.

What considerations guide your sector allocation decisions?

Lang: The same principles apply here as with stock selection: we aim to invest in companies that figuratively possess a strong economic moat. If, for example, we currently find many highly attractive companies in the technology sector, we acknowledge this as a fact. This may lead to an overweighting in certain sectors. However, we always ensure that our portfolio remains reasonably balanced in terms of sector diversification.

Hink: The same applies, of course, to corporate bonds. In the bond portfolio, there is additional risk diversification through a mix of government and corporate bonds.
With the L&H Multi Strategie UI, you can take advantage of opportunities in investment markets worldwide. Where is your current regional focus, and what determines your regional allocation?

Lang: In the bond segment, we are primarily invested in Europe. For equities, there is a regional difference: the United States currently represents the main focus of our exposure. This is not driven by a global index like the MSCI World, as we operate entirely independently of benchmarks. At present, we are more likely to find companies with a strong economic moat in the United States.

The L&H Multi Strategie UI is a fund classified under Article 8 of the SFDR. How is sustainability selection integrated into the investment process?

Hink: For sustainability, we collaborate with the established experts at EthiFinance (formerly imug rating) as advisors. Together, we have defined a binding process. Every bond issuer or company whose shares we wish to invest in must pass through EthiFinance's filter before investment. This ensures our portfolio meets the set of sustainability criteria that we developed in a detailed and intensive process in partnership with EthiFinance.

These criteria include strict exclusions for companies in certain industries. For example, sovereign bonds we include in the portfolio must achieve specific scores in Freedom House analyses. When investing in funds managed by other asset managers, our long-term goal is to select only products suitable for investors pursuing sustainability-related objectives.

What do you see as the biggest challenges and greatest opportunities for balanced mixed portfolios in 2025 and beyond? And how do you believe the strategy of the L&H Multi Strategie UI can prove itself across different market phases and scenarios?

Lang: Every year brings its own challenges. We said as much at the start of 2024, yet the L & H Multi Strategie UI has delivered a performance of 11 percent since the beginning of the year (as of November 2024). However, I want to temper expectations here. Returns like these cannot be achieved every year, and maximising returns is not the goal we pursue. Instead, we aim to provide investors with a defensive core investment.

Looking ahead, the return of Donald Trump to the presidency will undoubtedly have a significant impact on the conditions for key asset classes. US equities could gain further momentum and, despite their possibly high valuations, remain attractive. However, the tariffs Trump has announced could add additional short to medium-term challenges for European companies.

In the bond market, Trump’s proposed tax cuts and the resulting increase in US government debt could lead to disruptions. For this reason, we are likely to continue focusing more on European bonds, especially as we expect the interest rate cut cycle in the Eurozone to remain intact.

Hink: This is our general outlook. However, we will continue to rely on our "Market Traffic Light" system and actively adjust the equity allocation in our portfolio throughout the year in response to its signals. As in the past, our aim is to keep volatility in the fund as low as possible for investors, regardless of market conditions.

Overall, we are more than confident that we will continue to achieve our minimum goal of preserving real capital for investors – as we have done on average since the fund's inception in 2011.