- The DWS Invest Conservative Opportunities fund diversifies its investments across a broad spectrum.
- Investments include funds, shares, corporate bonds and "safe havens" such as Japanese government bonds.
- The fund has proven robust in the face of equity market setbacks.
Thomas, as a driver, do you prefer a rigid chassis or a smooth ride with cushioned suspension?
On the road, I would opt for the sporty category. And as a private investor, I might also be a little bit more adventurous, because on the capital markets that can create opportunities for higher return on investment. As a fund manager, however, I am aware that more risk is not necessarily right for investors who are used to government bonds, fixed-term deposit accounts and savings accounts.
You’ve compared DWS Invest Conservative Opportunities, which you’ve been managing since its launch in September 2019, with a four-wheel drive. What did you mean by that?
DWS Invest Conservative Opportunities is designed to resemble a car with good suspension and plenty of ground clearance. Our aim is fund performance that is as consistent as possible with possible losses in one part of the portfolio compensated for through gains in another part. This works in the fund through broad diversification. We make sure that the various portfolio positions do not move in unison when the underlying asset classes move. In technical jargon, this is called low correlation. We also aim to limit the portfolio’s margin for fluctuation to five percent. This allows us to serve investors who highly value risk control.
Who are these investors?
I see investors who are first and foremost interested in capital preservation. They have a low tolerance for losses and want to be able to cash in their investment at short notice. They are also used to receiving regular income like they did in the old days when coupons on safe government bonds and short-term time deposits still provided considerable interest. But the sad truth is that bonds and bond funds have benefited from decades of interest rate cuts. This brought us to the interest rate level we have today. Although further interest rate cuts are not impossible, at today’s levels that currently looks unlikely.
Does this mean that the fund does not invest in equities?
No, quite the opposite. Our guiding principle is that there is currently no alternative to equities, although they are not without risk. As a matter of principle, equities are therefore always one of the four wheels on the car. Equity exposure comes primarily from our team's well-known strategies, DWS Concept Kaldemorgen and DWS Dynamic Opportunities. We then bolster the other three corners of the vehicle with investments that can counteract sharp stock markets falls when they happen.
What are the fund’s other three components?
First, we have fixed-income investments that are less correlated to our strategies - for example, individual corporate bond funds. There are also other components, such as US government bonds, investments in the Japanese yen or gold, which are known as "safe haven" investments. These investments usually react positively if the stock market abruptly falls. They can be a good shock absorber that pulls in the opposite direction and keeps the car firmly on the road.
And what is the fourth component?
Well, that could, for example, be yield opportunities after a major price drop in the high-yield bond market. Or perhaps strategies that look particularly attractive, especially when compared to the overall stock market. But control is the dominant principle in all of this.
Could you put a figure on that?
Take the recent shake-up in the market caused by coronavirus. In the second half of January, the MSCI World global stock market index fell by almost three percent in euros. By comparison, DWS Invest Conservative Opportunities held up relatively well over the same period thanks to its broad diversification - and with an equity allocation of more than 20 percent at the time. The effect I mentioned is plain to see here and worked as desired in this case.
What are the fund’s current assets under management - and how’s its performance?
Just over 10 million euros are invested in the fund at present. By the end of January 2020, DWS Invest Conservative Opportunities had achieved a gross return of a good 2.5 percent since its launch in September 2019. This is a respectable result, considering that the fund was launched in the third quarter of 2019 in rather unsettled times. For we launched just as the central banks announced they were actually going to expand their loose monetary policy. This is an unfavourable environment, especially for so-called "safe havens".
When do you readjust your portfolio and how many stocks does DWS Invest Conservative Opportunities hold?
There is no fixed rhythm. We restructure the fund when we see opportunities in the market. The intention is that the fund should typically contain between ten and twenty securities in the four categories mentioned above to ensure broad risk diversification. As a rule, these are in-house funds - for example, DWS Concept Kaldemorgen and DWS Dynamic Opportunities. They form the fund’s core and reflect our team-oriented approach. But individual investments in gold, the Japanese yen or US government bonds are also possible. There are no fixed limits on share and bond investments. As already mentioned, we strive for lower loss tolerance and, aim for a smaller margin for fluctuation margin than the DWS Concept Kaldemorgen with a maximum of five percent. Both these factors support greater return consistency. Our goal is to generate a positive return for our clients over a three-year period.
Finally, don't investors pay twice if they invest in a fund of funds that buys individual funds?
No, that does not happen - at least not at DWS. We use a differential cost methodology internally to prevents this.
Key data of DWS Invest Conservative Opportunities LC
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Investment Policy of DWS Invest Conservative Opportunities LC
DWS Invest Conservative Opportunities is a multi-asset fund with integrated risk management. The fund of funds invests at least 51% of its net assets in target funds. Units in domestic and foreign equity funds, multi-asset funds, bond funds and near-money market securities funds can be acquired for the fund. Fund assets may also be invested in equities, interest-bearing securities, share certificates and convertible bonds. The volatility of the unit value should be between 2-5% annualised over a rolling five-year period (no guarantee).
Risks of DWS Invest Conservative Opportunities LC
-At any time, the price of the shares can fall below the price at which the investor acquired them (up to the risk of total loss).
- Market, industry and company-specific price fluctuations on the equity markets.
- Interest rate, price and currency fluctuations in the bond markets. A creditworthiness risk exists with regard to the issuers of bonds. In general terms, this is the risk of over-indebtedness or insolvency, i.e. the potential temporary or permanent inability to fulfil interest and/or repayment obligations on schedule. This can have a negative impact on the fund's performance.
- Asset-backed securities may be less liquid than corporate debt; in addition, there is the risk of early repayment, which can lead to fluctuations in the unit price.
- The use of derivatives involves counterparty risks, i.e. the creditworthiness risk of the counterparties (see the above risk notice on creditworthiness risk). Derivatives are subject neither to statutory nor voluntary deposit insurance.
- Investments in the commodities sector may be associated with illiquid markets and high volatility.
- The fund has the option of achieving leverage through the use of derivatives. The use of leverage can result in the increase in potential losses.
- The fund can invest in assets with different currencies. This gives rise to exchange rate risks, which may be hedged.