- Assistance with asset allocation decisions
- Strict and disciplined systematic adjustment of the degree of investment in the various asset categories.
- The reduction of volatility in the performance of the various asset catagories lowers the risk of the whole portfolio.
- Timing considerations become secondary
Generally, as long as the client does not wish otherwise, we hold in client portfolios bonds (German government and other government bonds), stocks (index shares, so-called "blue chips"), and currency (primarily US dollars).
The weighting of the individual investment categories - the asset allocation - is the most important of the factors to be decided, as with this decision the future levels of risk and return are decided. Together with the client we take the factors risk and return, client preferences and needs as well as taxation aspects and put together a portfolio mix that best fits the clients objectives.
Our management service consists first of all in assistance in the asset allocation decision, taking into account historical risk and return values, and then in daily management of the degree of investment in the individual asset categories.
What does this all mean?
The degree of investment of an asset category gives in percent the size of the non-hedged portion of the investment, that is, the percentage of the asset category which is exposed to fluctionations in the market. This "degree of investment" will be constantly changed by us according to a set of systematic rules to conform to the present market situation. In stabile uptrends the degree of investment will be around 100%, so that the portfolio components can participate in the uptrend. In times of falling prices we reduce the degree of investment in a series of steps through the use of futures, and can reach a degree of investment of 0%. Following such a reduction the degree of investment will be successively increased as the market rallies. Precise management of the degree of investment makes the usual "timing" question unnecessary. The usual debate which follows a sizeable market pullback – whether to further reduce exposure or to take advantage of cheaper prices to increase exposure - is answered by our management approach with a constant adjustment of the degree of investment according to the market trend. The cushioning of the market retracements through the hedge activities has the secondary effect of reducing the volatility of swings in value in the individual investment categories, thereby reducing the risk of the whole portfolio.