The breadth of the STOXX Europe 600 combined with a disciplined hedging strategy

Thomas Timmermann: The baby boomer generation is now retiring in Europe. Many of these investors prefer equities to fixed-term deposits or government bonds as a hedge against inflation. However, their equity allocations are often low because security is a priority for them, and they have experienced first-hand several stock market crashes. Our fund aims to significantly reduce the risk of losses while offering the opportunity to substantially outpace inflation through the long-term average returns of the European stock market.'

How specifically do you hedge against the risk of a crash, and what effect does this have on share value?

'We use hedging options at the European Derivatives Exchange EUREX, which, in extreme cases, largely offsets equity portfolio losses. Consequently, the fund’s volatility is around one-third that of the underlying index over a 180-day period. At the same time, the fund typically remains about 97% invested in equities– much like an ETF, but with an additional risk buffer.

Aren't such hedges very expensive?

Static, permanent hedges would certainly be too costly. That is why we rely on active management. We use call options with varying maturities to implement sideways strategies. In Europe, we often experience extended periods without price gains - during such times we can generate additional returns that significantly reduce hedging costs. Moreover, during correction phases, profits from existing hedges can be realised and reinvestet advantageously at lower price levels.

How much hedging are you currently doing?

It depends on geopolitical, fundamental and technical factors. Essentially, the 'worst case' scenario level of protection is always in place. This results in an effective equity exposure that can fluctuate between 0 and 100 per cent. We publish our current assessment and the corresponding ratio twice a week on our website, www.timmblog.com, so investors can transparently follow the strategy at any time.

Would you generally advise investors to invest in European equities?

Yes, absolutely. 2025 has shown that the dominance of US tech stocks can be undermined by currency losses. Therefore, anyone living in Europe should also invest in Europe. Our markets offer a broad universe of strong, profitable companies and are more attractively valued than those in the US. For those cautious about maintaining high equity allocations, the TimmInvest Europa Plus Fund offers a compelling alternative: it combines physical equity investments with active risk management, providing both a distributing and a reinvesting tranche at competitive costs.

Finally, a personal question: you worked in Commerzbank's trading rooms for 30 years. Are you invested in the TimmInvest Europa Plus Fund yourself?

100%. It's the only way I can experience what our investors go through day in, day out, particularly in comparison to US markets. Almost five years after its launch, I remain convinced that broadly diversifying investments in European equities and implementing a focused hedging strategy is sensible. Without wishing to sound like a prophet of doom, I am certain that the next significant market correction will come - and on that day, I want to be able to act rather than be paralysed by shock watching my portfolio losses.