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This article is for Financial Broker Use Only.
Henning Potstada, DWS
1. How did the Concept K Fund perform in 2023?
Producing a gross return of 7.1%1, the Concept K Fund was the best performing fund in the Longboat Analytics alternatives peer group2.
| 2023 Return1 | Position vs peers 20232 | Position vs peers 5 Years4 |
| Concept Kaldemorgen | 7.1% | 1 |
2. What were the drivers of this strong fund performance?
Understanding fund performance in 2023, it is important to take a step back and consider 2022. The tectonic interest rate shift enacted by the FED and ECB in 2022 led to a massive sell-off in Bonds and equities, with the most significant losses in growth stocks. We managed this quite well and limited our drawdown with a short-duration position (profiting from rate increases) and an equity shift towards more defensive stocks. Going into 2023, we shifted this allocation in a very structured manner. First, we increased our duration back to a low positive level at the beginning of 2023. Taking this position, we were able to profit from elevated interest rates at the short end of the yield curve compared to lower rates at the longer end. Our allocation in Fixed Income contributed very positively to total fund performance in 2023 (+190bps).
A significant fact is that the limited interest rate risk positioning also meant lower volatility contribution to the portfolio. As our philosophy in managing the strategy is to optimise the risk-return potential of the asset classes we invest in, we were able to use this additional risk budget to shift towards growth stocks in equity again. Hence, digital/tech and cyclical stocks contributed the most to our decent performance (around 520bps) while keeping overall fund risk at bay. A grain of salt: going into 2023, we were rather cautious due to the potential impact of the massive rate increase on the economy. We kept some of our structural equity allocation hedged. We changed course quickly following the market setback in August/September and profited from the broader year-end rally in equities (Equity contributed around 680bps bps in 2023).
Further, our allocation in Gold, especially in the aftermath of the Israel-Hamas war in October and the flexible use of cash in the portfolio, also supported total return in 2023 with approx. 130bps. A setback came from our USD and JPY, which we consider as “safe haven” currencies that usually perform in difficult markets. Given the strong equity markets in 2023, this allocation weighed a bit on overall fund performance (-200bps performance contribution). Overall, we reached a new all-time high at the end of 2023. At the same time, we lived up to the target of optimising risk-return as we kept the risk for the fund low in terms of volatility, interest rate risk and credit risk.
3. What’s your outlook for 2024 and the Fund’s resultant positioning?
The uncertain economic environment will continue in 2024 and will be characterised by the tension between inflation, growth, central bank policy, and ongoing geopolitical tensions. In this environment, the advantages of flexible multi-asset funds should pay off: participation in the long-term opportunities of the equity markets and generation of an attractive interest income with limited duration risks as a buffer for more turbulent times. Regarding risk budget, we currently prefer allocating most of our available risk budget to equities over duration and credit risk.
On the equity side, we continue to ensure a good balance between the “stability”, “growth” and “cyclical” thematic pots buckets. This structure is designed to provide good diversification across different interest rate and economic scenarios. Our focus is on defensive stocks, such as pharmaceuticals and insurance companies. Driven by structural growth trends such as digitalisation or artificial intelligence, IT stocks also make up a larger part of the portfolio. We remain cautious with cyclical stocks from the energy and commodities sector. Our gold position also contributes to our portfolio’s diversification and protects against inflation and geopolitical risks.
1. Source: Longboat Analytics to 01 January 2024 based on calendar year returns. The returns quoted include the reinvestment of net income and are net of trading costs, but before deduction of annual management charges and other insurance contract charges and as such do not represent the returns on insurance contracts linked to these funds. Details of all charges for a particular product are available on request.
2. The peer group is the alternatives sector on Longboat Analytics and includes funds from Aviva, Zurich and Irish Life.
Warnings
| Warning: Past performance is not a reliable guide to future performance. Warning: The value of your investment may go down as well as up. Warning: The income you earn from this investment may go down as well as up. Warning: If you invest in these funds you may lose some or all of the money you invest. Warning: These funds may be affected by changes in currency exchange rates. Warning: If you invest in a pension, you will not have access to your money until you retire. |
