Focus on: World Savings Day

Why the World Savings Day actually needs a different name

Who would have thought it? The good old savings book, the icon of World Savings Day, has experienced an unexpected revaluation in times of increasingly widespread negative interest rates. Banks are not allowed to charge negative interest on savings books, yet this small benefit does not make up for the shortcomings. It says a lot when an investment is only highlighted because it does not lead to losses. Let us think back: for decades, the compound interest effect, long-term capital accumulation through interest-bearing savings, was the driving force behind the will to save. This is no longer conceivable in the long term. In view of this contradiction, a day that was once conceived to educate broad sections of the population about finance should not actually be called World Savings Day.

Stocks still undervalued compared to bonds

The fact that many people are already thinking beyond savings books was recently shown by figures from the European Central Bank . According to these figures, around 74.5 billion euros were invested in equities and investment fund shares in the second quarter of 2020, after outflows in the first quarter. But is it still lucrative to enter the stock markets, as many indices are now trading near pre-crisis levels again, even though the consequences of the coronavirus pandemic remain unclear? "The valuation of an investment should always be considered in relation to other investments," says Klaus Kaldemorgen, fund manager of the multi-asset total return fund DWS Concept Kaldemorgen. For example, a US government bond with a ten-year term is currently valued at 151 in terms of the price-return ratio, while the price-earnings ratio, the corresponding benchmark for the stock market, is only 27 on average worldwide. "If you look at equities in relation to bonds, there is still a lot of room for improvement," says Kaldemorgen.

Beware of blind faith in narratives

However, the fund manager warns that in the stock markets, "narratives", i.e. stories that influence perception, are increasingly determining the direction of prices. "The advantage of a narrative is that out of a multitude of influencing factors, it focuses on those that are considered to be particularly relevant to a stock’s performance. This makes the investment decision much less complicated," says Kaldemorgen. The disadvantage of a narrative, however, is that after a while it develops into a creed that is no longer questioned, as the price development is proof enough of its coherence. "The positive narrative against the background of the coronavirus pandemic is currently to attribute a high growth potential to everything that is digital and offers ways to distance from other people. The current negative narrative is that oil companies are the biggest polluters on the planet, and you don't want to get your fingers dirty," the fund manager says. Against this backdrop, it is not surprising that nine of the world's ten largest companies are now in the digital age, while oil companies are trading well below their liquidation value, according to analysts.

"But let us assume that the coronavirus crisis will be quickly ended by a vaccine. Stronger economic growth with rising inflation rates and higher interest rates would then be a realistic scenario. The growth of digital products and services accelerated by the pandemic, on the other hand, would prove unsustainable, and the price of oil would perhaps be too low. The return to 'old normality' instead of the continuation of the 'new normal' would then be a narrative that could be popular," says Kaldemorgen.

Multi-asset funds can provide a more linear return

The impact of such over- or under-pricing is much less pronounced when investments are spread across several asset classes such as equities, bonds, currencies and gold. However, since few people have the capital to acquire sufficiently large positions in all of these asset classes, multi-asset funds are a good choice. These products benefit from the often opposing price trends of individual asset classes. For example, if the stock markets collapse, the markets for top-rated government bonds, such as those from the USA or Germany, generally rise. Because of this so-called negative correlation, multi-asset funds are typically less volatile than portfolios that invest in only one asset class.

If the portfolio manager can adjust the weighting of individual asset classes quickly in response to changing market conditions, multi-asset funds are well placed to weather even extremely stormy times such as the coronavirus crash this year. Thanks to this flexibility, they can increase exposure to asset classes with rising prices, while largely avoiding asset classes with falling prices.
There is also another approach that can be used to stabilise multi-asset fund performance. If, for example, 50 euros are spent each month to purchase units in a multi-asset fund, the number of units will vary each month according to the current unit price. If the current price falls, 50 euros could purchase more units, which would then also reduce the average purchase price. Incidentally, this approach is called a savings plan, which is perhaps why the World Savings Day should be called World Savings Plan Day.


Sabina Diaz Duque
+49 (0)69 / 910 14177

About DWS Group
DWS Group (DWS) is one of the world's leading asset managers with EUR 759bn of assets under management (as of 30 September 2020). Building on more than 60 years of experience, it has a reputation for excellence in Germany, Europe, the Americas and Asia. DWS is recognized by clients globally as a trusted source for integrated investment solutions, stability and innovation across a full spectrum of investment disciplines.

We offer individuals and institutions access to our strong investment capabilities across all major asset classes and solutions aligned to growth trends. Our diverse expertise in Active, Passive and Alternatives asset management – as well as our deep environmental, social and governance focus – complement each other when creating targeted solutions for our clients. Our expertise and on-the-ground-knowledge of our economists, research analysts and investment professionals are brought together in one consistent global CIO View, which guides our investment approach strategically.

DWS wants to innovate and shape the future of investing: with approximately 3,400 employees in offices all over the world, we are local while being one global team. We are investors – entrusted to build the best foundation for our clients’ future.


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