Posted inAbsolute ReturnDACH

Low yield environment makes Germans less risk

One in five interviewees now said return expectations are their primary consideration when deciding how to allocate their assets, up from only 8% a year ago. Though the share came down from 79% to 64%, the large majority of German institutional investors continue to prioritise the preservation of capital over return.

Chart: Which of the following do you find most important when making investment decisions?

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Investment targets under threat

Some German investors are probably at least partly abandoning their risk-averse attitude because they will not be able to meet their return targets otherwise. On average, respondents of the survey think that 43.5% of their peers in Germany will fail to achieve their projected returns for the next 4 years if they don’t change their investment policy.  

While German investors have become significantly more risk-prone, they still attach a great deal of importance to risk management. Roughly eight in 10 investors said they find it important that an asset manager they work with has the right risk management capabilities, a figure similar to that of last year.

Wanted: uncorrelated strategies

The strong German emphasis on risk control implies an increased demand for uncorrelated strategies which offer protection against an equity or bond market crash, such as absolute return. And indeed, the asset class has been popular with German investors for quite some time.

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The latest EIE data for the country, which were gathered last month, show that 48% of German fund selectors plan to increase their exposure to absolute return, while none will decrease their allocation. This contrasts greatly with the popularity of developed market bonds, traditionally the default investment for many Germans. Especially high yield and government bonds are highly unpopular (see charts).     

 

Part of the Bonhill Group.