Deutsche Bank Wealth Management is launching a new series of strategic asset allocation (SAA) ETF-based funds in Europe this week in response to demand from clients for simple, cost-effective, long-term investment portfolios designed to address the challenges of unstable market cycles.
While discretionary investments typically focus a lot on tactical positioning to meet or exceed market benchmarks with a medium-term horizon, the new funds enable clients to access and invest in the long-term view of the WM Chief Investment Officer’s (CIO) team, including structural economic shifts lasting a decade or more. Clients also have the option to invest in funds using Deutsche Bank’s systematic hedging strategies, known as Risk-Return Engineering, which is designed to add downside protection.
The funds are particularly cost-efficient because they invest in low-fee ETFs (exchange-traded funds) using open architecture and are built to minimise the need for frequent rebalancing. They are wrapped in-house by Deutsche Bank’s DWS arm, one of the world’s largest asset managers.
“The timing for our Strategic Asset Allocation funds could not be more appropriate,” said Claudio de Sanctis, Global Head of Deutsche Bank Wealth Management.
“Wealth management clients are looking for robust and efficient ways to protect themselves and their families from the kind of volatility we have seen recently because of the coronavirus. We have a particular vantage point as the leading bank in Europe’s biggest economy to anticipate what might come next and help our clients prepare,” de Sanctis said.
“A feature of the new SAA Funds that is extremely compelling to our clients – particularly in times like these -- is the option to add systematic downside protection,” said Alessandro Caironi, Head of Advisory & Sales at Deutsche Bank Wealth Management.
He added: “The 'Plus' strategy SAA funds include our Risk Return Engineering Strategy, which has a long track record in efficiently managing downside risk while minimising the hedging costs via listed options. This is ideal right now as it allows investors to increase their exposure to growth assets while maintaining a more conservative risk profile.”
The majority of long-term portfolio returns are attributable to strategic asset allocation, making it key to managing multi-asset portfolios.
The classical approach to strategic asset allocation relies on forecasting the returns and volatility expected from each asset class, and how the price of each asset class is expected to move in relation to the others. A calculation is then made about which combinations of asset classes have the highest potential for a given level of risk. However, the parameters may not behave as forecasted. The approach by Deutsche Bank Wealth Management is to go one step further by factoring in the level of uncertainty that can be applied to each parameter of each forecast, and therefore build portfolios that are more robust.
“Effective SAA does not claim to have perfect knowledge of future asset class returns,” said Christian Nolting, Global Chief Investment Officer for Deutsche Bank Wealth Management. “However, we do it not only via analysis of risk and return, but also through an in-depth understanding of correlations between asset classes.”
Subscriptions for the SAA funds begin this week in Germany, Luxembourg and Switzerland and the first net asset value (NAV) will be calculated on April 30. They will also be rolled out in other European countries as well as in Asia later this quarter.