- The returns for bonds and equities are likely to decline, the DWS Research Institute believes.
- Optimized asset allocation is likely to become even more important.
- Investments in emerging markets are likely to have the most potential in coming years.
The DWS Research Institute says in its January 2019 analysis that broad diversification, a well-tested investment strategy that has been out of fashion since the financial crisis, is appropriate again. In concrete terms, DWS researchers estimate that those who will keep their level of risk unchanged in the future will probably get only half the return they have been getting within the past ten years.
If the level of risk keeps unchanged, yields could halve.
Multi-Asset funds can react flexibly
Particular care is therefore essential now in portfolio composition. But few private investors can evaluate the most efficient portfolio structure. And few have the time and knowledge to make such complex investment decisions in which opportunities for returns are exploited and risks consistently avoided to generate a good return with as little volatility as possible.
The solution could be a multi-asset fund. Its managers can invest across different asset classes, such as equities, bonds or currencies, and aim to maintain an ideal portfolio mix by flexibly changing course.
Above-average return opportunities in emerging markets
DWS Research Institute experts believe emerging market equities and bonds are likely to deliver higher yields (in local currency) in coming years compared to equities from Europe and the USA.
Some investors may feel investing in emerging markets is too risky. Which corporate balance sheets and stock exchanges can be trusted? Such questions are justified. Sensible diversification as well as targeted stock selection is a must in emerging markets to keep risk under control. Ultimately, this can only be achieved by professionals who are constantly monitoring the markets and reacting quickly to developments, when necessary.
Emerging markets offer prospects of above-average returns
Multi-Asset funds: a way to respond
Equity markets are currently undergoing rapid change. Over the past ten years, returns on European and Japanese equities have held up well against those on emerging markets - and in the case of the US, have even outperformed them. But this might change. While returns from equities in industrialized countries are expected to decline significantly, emerging markets equities are expected to almost maintain their level, according to the DWS forecast.
Emerging market equities and bonds are attractive
The expected higher returns on emerging market investments are not limited to equities. The DWS Research Institute expects emerging market bond yields to be far higher than those in Europe and the U.S. While dollar-denominated emerging market government bonds generate yields of around six percent, government bonds in the euro zone are only just above zero. It may therefore make sense for investors to look beyond the investment classes with which they are familiar.
All statements of opinion reflect the current assessment of DWS International GmbH and are subject to change without notice. Forecasts are not a reliable indicator of future performance. Forecasts are based on assumptions, estimates, opinions and hypothetical performance analysis, therefore actual results may vary, perhaps materially, from the results contained here. Past performance, actual or simulated, is not a reliable indication of future performance.
DWS International GmbH as of April 02, 2019
CRC 066308 (04/2019)