‘Spezialfonds’ – German fund structures for institutional investors – performed better than euro-area bonds over an extensive period but with less volatility, according to analysis by the country’s fund association, BVI.
BVI data showed spezialfonds returned on average 4.1% a year between December 31, 2009, and November 30, 2022 – higher than the 2.2% average annual return measure by the ICE BofA Euro Government Index.
The figures are from the newly launched BVI spezialfond index, which measures returns from “securities-based” spezialfonds—a core investment instrument for institutional investors such as pension funds, insurers, banks and foundations.
European equities measured by the MSCI Europe index returned an annual average of 7% – but the BVI showed that spezialfonds’ annualised standard deviation of 4.3% indicated less volatility of the spezialfond index than in many equity indices – and even when compared to the Euro Area government bonds index. The BVI said this highlighted a focus on risk minimisation and that Sharpe ratio readings showed that the funds performed better per unit of risk than European equities.
Stability of performance could be attributed to bonds, which made up 43% of portfolio allocations at the end of November 2022, followed by 28% in other investment funds and only 15% in equities, according to Deutsche Bank data. Bank spezialfonds performed highest compared to insurance spezialfonds, which have more exposure to bonds. About 62% of spezialfonds’ assets were invested in pension funds or insurance companies, but private non-profit organisations (such as trusts), banks and non-financial corporations use spezialfonds for their investments.
Despite higher bond allocations, the fluctuations in returns of open-ended spezialfonds resembled stock market movements. A correlation analysis revealed that spezialfonds managers took advantage of opportunities in risky markets while minimising the risk taken amid less volatile conditions.
Returns were down throughout recent times of volatility, but the BVI said no investor group faced losses.
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