The bank's wealth management arm points to hedge fund strategies it thinks can give portfolios impetus in a more difficult market environment.
The wealth management arm of Deutsche Bank is trumpeting the charms of alternative investment areas such as hedge funds which it said can deliver returns as storm clouds darken over equity markets.
Against a backdrop of concerns about protectionism, rising interest rates and an expectation that high returns from listed equities are unlikely to continue indefinitely, Deutsche Bank Wealth Management says alternative investments deserve more space in portfolios.
“While we believe that investors should stay invested in the market – albeit hedged – the portfolio diversification potential of alternatives in general could prove crucial, particularly if they can help stabilize a portfolio when the normal historical relationships between traditional asset classes do not hold, at times of market disruption, Christian Nolting, global chief investment officer at CIO at Deutsche Bank Wealth Management said.
“We believe investors are seeing the benefits of additional returns, the diversification away from traditional asset classes, and less volatile returns. Hedge funds for example could be seen as a partial substitute for bond allocations, while illiquid investments could potentially offer the so-called illiquid premium,” Nolting continued.
The firm favours discretionary macro hedge fund strategies, which attempt to gain from macroeconomic, policy or political changes. Deutsche said these strategies’ can capitalise on differences between the economic policies of major economies.
Equity market neutral strategies should benefit from an increased dispersion of performance across sectors and stocks. Deutsche said.
The bank added that event-driven strategies, which typically try to exploit price movements in and around events such as mergers, will do well increased corporate deal activity.