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FIVE YEARS, FIVE STARS
In 2020, the global trade war, Brexit, the US presidential election as well as economic and financial surprises will inevitably make an appearance. Expect the unexpected!
In this environment, DPAM L Global Target Income, with its cautious balanced profile, is a compelling strategy that offers predictable and elevated income. This global multi-asset fund aims to deliver an annual dividend of minimum 3%. To achieve this goal, which has been met every year since inception, the fund has a strong focus on dynamic risk controls through proprietary models and on investments in income-generating asset classes, mainly through dedicated DPAM funds.
Frederiek Van Holle, Ph.D, Fund Manager
Within the conservative balanced funds universe, DPAM L Global Target Income offers a combination of remarkably high returns and low level of risk. What are its winning mechanisms?
In recent years, the prevailing opinion was that with low or even negative yields, German bunds were overvalued and one should exit the asset class. When looking at correlations however, it was clear that bunds continued to offer risk diversification benefits.
The events of January 2016 proved us right: risk assets, especially equities, crashed due to worries about the Chinese economy, but the fund managed to book a small gain. The allocation optimization model immediately detected higher volatility in risk assets such as equities and high yield corporate bonds and gradually reduced their weight. At the same time, the model raised exposure to safe-haven assets such as German and US government bonds. Thus, the fund’s volatility was contained and we ended the month in the black.
In our view, conventional balanced asset managers often take too many unnecessary risks, whereas it is crucial to focus on efficient ways to curb volatility.
DPAM L Global Target Income has received recently Morningstar’s highest rating in the EUR Cautious Allocation – Global fund category. The 5 star rating is testimony of the fund’s stellar risk-return track-record over five years. Click below to know more:
In the past, models were criticized for being unable to anticipate market shocks or for being ‘paralyzed’ when correlations turned positive for asset classes such as equities and bonds that usually move in opposite directions. How do you respond?
You cannot and should not even try to anticipate a market shock! Also in general, models have evolved since then to cope with such shifts. Our proprietary model has built-in mechanisms to aggressively de-risk the portfolio whenever necessary. Take the Greek crisis in spring 2015 when government bond yields rose abruptly, while equities slumped. Our equity exposure of around 29% was cut to about 15% and the fund was stabilized by shifting to a very defensive risk profile.
Here our flexibility is also an asset. We are not attached to a benchmark or pre-set allocation mix, in contrast to some peers. The only criteria for a position to enter the portfolio is that it should diversify risk. Meanwhile, an asset that is highly correlated with other positions can be reduced to 0%.
However, DPAM L Global Target Income always remains fully invested. In case of trouble, we do not move to cash, which is also different from many peers. Exposure to all risk contributors is reduced at the same time to curb the overall risk profile of the portfolio.
Altogether these features have enabled us to capture a greater share of the upside and a smaller share of the downside versus the Morningstar category.
DPAM L Global Target Income’s capture of up and downside versus Morningstar category
Source: MorningstarDirect, 1.12.2014 – 30.11.2019.
After a successful five years, what are your plans going forward?
To quote Albert Einstein, “The measure of intelligence is the ability to change.” We will not rest on our laurels, as we want to make sure that our clients’ goals are consistently met and that we stay ahead of the pack.
First, we will continue to test and assess advanced methods of risk modelling so that the portfolio is even less sensitive to downside risk than it already is. Second, we are looking at the efficiency of less traditional diversifiers such as currency carry strategies. Third, we continuously collaborate with universities to enhance our understanding and modeling of risk since this is the core of our investment strategy.
In sum, “adapt & thrive” is our guiding principle for the going forward.
A proper multi-asset portfolio is truly diversified across a range of asset classes, asset allocation is dynamically managed to position the portfolio to current market conditions and investment selection covers the full spectrum of investment choices.