Investment risk

German Investors Taking No Chances

markets
Many German investors foresee high market volatility in the coming months.
  • Why it matters

    Why it matters

    Institutional investors are having to increase their reliance on riskier investments to generate cash in the current climate of very low interest rates.

  • Facts

    Facts

    • Union Investment, the investment arm of DZ Bank, surveyed 212 institutional investors with total assets of more than €6 trillion ($6.6 trillion).
    • German investors showed the greatest aversion to losses, with 82 percent of respondents stating that this was the most important issue.
    • German respondents also said that they expected 64 percent of investors would not achieve their investment objectives.
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    Audio

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Major investors are changing their views. Investment conditions have changed fundamentally in a world without interest, and investors such as pension funds and insurance companies are trying to adjust to the new reality.

This is only too clear in the results of a survey of 212 institutional investors with total assets of more than €6 trillion ($6.6 trillion), conducted by Union Investment, the investment arm of Frankfurt-based DZ Bank.

In a comparison among countries, German investors showed the greatest aversion to losses, with about 82 percent of German respondents stating that this was the most important issue to them. In fact, it turns out that Germans are European champions when it comes to risk aversion.

Such aversion is significantly lower in countries where investors have a stronger affinity for equities, such as the Netherlands and Great Britain. And the German share is also lower than it was in last year’s survey, which is why Union executive board member Alexander Schindler said: “Many institutional investors are apparently rethinking their capital investments and adjusting to investment reality.”

German respondents said that they expected 64 percent of investors would not achieve their investment objectives.

Most of those surveyed were concerned about the future, with the level of skepticism especially high in Germany. German respondents said that they expected 64 percent of investors would not achieve their investment objectives. About one in two respondents cited low interest rates as the main reason.

According to Mr. Schindler, this was “not surprising, as fixed-income investments continue to dominate the portfolios of German investors.”

The German investors are also European champions of pessimism when it comes to their assessment of the situation in capital markets. About 74 percent of the professional investors said they had noticed a tendency toward a herd mentality, and noted that parallel behavior among players creates the risk of bubble formation and market crashes. Likewise, about two-thirds of investors expect to see strong volatility in markets.

The rethinking of investment strategies is more or less a global movement. But a survey of European pension plans conducted recently by Mercer, a human resources consulting firm, suggests flows to riskier investments. It found that investors are shifting their bond portfolios away from domestic government bonds to higher-yielding bonds.

And a global survey by U.S. investment firm Blackrock concludes that almost half of all insurance companies plan to increase their investment risk in return for the prospect of higher returns.

 

Ingo Narat is an editor with Handelsblatt’s finance section. To contact the author: narat@handelsblatt.com

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