- Multi-asset funds enable investors to take advantage of market opportunities and balance risks.
- The fund manager must simultaneously be an expert in three disciplines: return, risk, and liquidity.
- Just like a top athlete, the fund manager can’t afford to be weak in any single discipline.
7:51:13 – These numbers were illuminated on the display panel in the humid heat of Kailua-Kona as Jan Frodeno crossed the finish line. This winning time earned the top German athlete his third Ironman victory. On October 12, 2019 (local time), Frodeno once again demonstrated how skills in three different disciplines can be synergized into one successful entity.
Triathletes must excel in three different disciplines. Professional Ironman competitors must swim 3.8 kilometers, bicycle 180 kilometers and then run a 42.195 kilometers marathon. Only those who master all three can reach their goal. That’s people like Frodeno, who had set himself the goal of setting a new record – which he did. To achieve that, he couldn’t afford to be deficient in any one of the three disciplines.
“The key is to always keep your mind focused on the goal,”
Jan Frodeno - Source: DW, Jan Frodeno: „Immer ein Spiel mit dem Limit“, as of: Oktober 2019
Mastering all the disciplines
What is true for triathletes is also true for managers of multi-asset funds. These funds combine various asset classes such as stocks and bonds. Fund managers must excel in the primary discipline: earning a return on investment. This is generally achieved through opportunity-oriented investments such as stocks. However, relying solely on these would be to neglect the second discipline: risk management. How much risk is acceptable varies by fund. DWS therefore offers several multi-asset funds with differing levels of risk. By choosing a risk profile that meets their needs, investors can virtually define the timeframe in which they’d like to reach their goal. To successfully manage risk, fund managers tend to choose low-risk investments such as bonds, and sometimes also gold, for example. In the third discipline, managers must always strive to ensure sufficient liquidity to be able to react quickly. After all, it’s no use to have a great investment opportunity if you lack the liquidity to take advantage of it at that particular moment.
“Having the right mix is the key,” emphasizes Henning Potstada, manager of the DWS Multi Opportunities fund. “In the end, though, flexibility is the decisive factor in ensuring a fund’s long-term success.” Just as a world-class athlete senses the right moment to pedal a bit faster or breathe more deeply during a competition, the multi-asset fund manager must also have a sixth sense for the right moment to take more risk or ease off a bit.
This is not a job for specialists with too narrow a focus: those who only understand the stock market risk outpacing themselves. Merely understanding risk isn’t very helpful when the stock market heats up. For multi-asset fund managers, this means that they must always keep a good overview, try to excel in all the disciplines, and have stamina. Just like the Ironman winner Frodeno: “Jan simply doesn’t have any weaknesses,” says two-time Hawaii winner Normann Stadler in explaining his colleague’s latest victory.
A performance like this also requires having a good team. For a triathlete, that team includes the trainer and physical therapist. For a fund manager, this team includes analysts, risk managers and his fund’s co-managers. The final decision rests on the shoulders of just one person though: the athlete who focuses on reaching the finish line within a given time — and the fund manager who aims for a specific rate of return.