Over 2019, German fund managers demonstrated their skills at mitigating market risks while capitalizing on buying opportunities — that continued a decade-long period of growth.
- The past 18 months have been positive for German fund managers, as macroeconomic risks abated.
- Refinitiv Lipper Fund Awards winners leveraged a unique combination of technology and talent to achieve superior fund performance during this time period.
- Germany’s fund industry is Europe’s fifth-largest, having doubled its size over the past decade.
There is an old German saying, “Anfangen ist leicht, Beharren eine Kunst” [i] — or in English, “Starting is easy, persistence is an art”.
During 2019, the saying was especially true for Germany’s fund industry. The year that economic uncertainties like Brexit, rising trade tensions, and a weakening global economy fueled severe market volatility, creating an environment that challenged the nation’s fund managers.
The 12 months that followed the CBOE VIX Volatility Index peaking in December 2018 — its highest since the prolonged aftermath of the Great Recession seven years prior [Ii]. “The year 2019 was a positive year for German fund managers,” enthused Detlef Glow, Head of Lipper EMEA Research at Refinitiv. “Flows were mainly driven by discussions about possible positive outcomes of the trade war between the US and China, the ongoing low interest rate environment, and many other events that were previously suppressing confidence in the markets.”
In 2019, Germany accounted for €13.8 billion of overall fund inflows into Europe, which totaled €302.1 billion over the year. Germany was the fifth-largest recipient of inflows in the region, behind international fund hubs Luxembourg, Ireland, Switzerland and Sweden. Arguably of more significance, Germany’s fund industry experienced rapid growth over the past decade, doubling its size within this period. In 2009, it was worth €1.7 trillion — in 2019, it topped €3.3 trillion [iii].
Traits and nuances
For some, the rapid rise of Germany’s fund industry is somewhat perplexing. German investors are widely viewed to be more risk-averse than those of other nations. “The conservative orientation of German investors can be seen in the use of mixed-asset funds,” said Glow. “Flows into Germany-domiciled funds during 2019 reflected this trait.”
According to Glow, real estate funds were the market’s best-selling asset type during 2019, seeing inflows of €10.5 billion [iv]. Property funds have long been a favorite of German investors and fund managers, given real estate’s relative stability when compared to other asset classes, and that property generally goes up in value over time.
Mixed-asset funds saw inflows of €3.5 billion, while bond funds experienced inflows of €1.5 billion. Equity funds, however, saw the market’s highest outflows, with €2.2 billion withdrawn [v]. Conversely, bond funds were the best-selling asset type across Europe, with inflows topping €257 billion. Across the continent, inflows into money market funds and mixed-asset funds reached €53.2 billion each, with real estate funds seeing net inflows of €5.1 billion — interestingly, Germany’s contribution to this asset type was halved by outflows elsewhere.
Market volatility presented Thorben Pollitaras, Managing Director at Comgest Deutschland, with the chance to buy stocks in companies with robust business models and predictable long-term earnings growth at attractive prices — something that was particularly challenging in previous years.
Not every firm awaits lower stock prices. “[We are] prepared to buy at higher valuations if the combination of structural competitive advantage and safety margin is guaranteed,” said Frank Fischer, CEO of Shareholder Value Management. “This allows us to generate stable returns with a manageable level of risk, even in an environment of ultra-loose monetary policy.”
Ultimately, asset selection is subject to the outcome the manager desires. Skilled managers, noted Daniela Brogt, Head of Germany and Austria of Janus Henderson Investors, are able to offer clients an original and differentiated range of products that can cater to specific investment strategies — whether alpha, beta, stable returns or liquidity.
Technology and talent
According to Manuela Thies, Managing Director and Head of Multi Asset Active Allocation Retail at Allianz Global Investors, programming skills are critical. The firm’s Research and Selection database enables fund managers to collect and evaluate input from hundreds of asset management companies in order to robustly assess investment decisions. Programmers play an integral part in maintaining and operating this database.
To formulate and execute these strategies, German fund managers are increasingly reliant on both technology and talent. At Merck Finck, explained CIO Daniel Kerbach, data and technology has vastly improved the firm’s quantitative capabilities. Yet for qualitative products like endowment funds, the firm still relies on qualitative criteria and human judgment. Technological capabilities and people skills are therefore equally as important to the fund management process.
Winners of the 2020 Refinitiv Lipper Fund Awards for Germany can be accessed here.
To learn more about the Refinitiv Lipper Fund Awards, visit lipperfundawards.com.
[iv] Detlef Glow
[v] Detlef Glow