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German fund buyers climb risk ladder

Investors in Germany are aware of an inconvenient truth: to have a reasonable chance to achieve their return targets, they need to take more risk.


PA Europe

German investors are traditionally conservative, bond-prone investors. But with the 10-year Bund yield now standing at 0.22%, long-term return prospects are bleak. So German fund selectors have started to seriously look for alternatives.

High yield: love it or hate it

High yield bonds are a possibility for yield-hunters, but the asset class has been very unpopular in Frankfurt for the past year. During the whole of 2014 about a third of fund selectors consistently told us they were going to decrease their exposure, while buyers were few and far between. This is now also apparent in the asset allocation data we are gathering: almost half of interviewees have no exposure at all to high yield bonds, which is the highest figure in Europe. Nevertheless, the amount of high yield buyers has come up sharply too, to 24%. This is also one of the highest figures on the continent.


Is absolute return the solution?

So, despite of a record number of German investors disengaging from high yield, bond investors who alt=''want to increase their exposure almost exclusively go for high yield. Most are looking for other yield sources though, which have a lower risk profile. Absolute return has been the Holy Grail for risk-averse yet yield-hungry European investors for quite some time, and Germany is no different. Six in 10 interviewees want to increase their weighting, while only 6% have no exposure. However, German fund selectors are still undecided about where to exactly allocate to.

While German investors traditionally prefer to stay clear of anything which looks like a hedge fund, alternative Ucits funds now seem to become a little bit more mainstream. A fund selector from a big German retail bank told our researcher he is planning a ‘big’ increase in exposure to long/short equity and global macro strategies, something which would would have been unheard of just a couple of years ago. Very few fund buyers dismiss alternative Ucits strategies outright, but there are a number of aspects they remain wary about. Quite some fund buyers complained to our researcher when he visited them recently that these funds are often not transparent and were lacking a long-term track record.