Sometimes prices move more sharply in one direction or the other. Then it seems obvious: something has to move in the portfolio too, in order to improve the odds of success. Here's why that assumption is usually wrong, and how quirion approaches the matter.
Since Donald Trump was elected US President, the trend in the markets has turned many times over - for many investors, that has meant an emotional rollercoaster. Online brokers, however, had reason to be pleased: with them, the average number of transactions per trading day has shot up by around 30 percent. That's shown by calculations from Barkow Consulting published in May.
The phenomenon is symptomatic. Whether prices are climbing especially strongly somewhere or a major stock index is plunging: investors feel pushed to take action. And they expect the same stance from investment professionals. Those professionals - so the assumption goes - have to keep a constant eye on the market and repeatedly adjust the portfolios in their care to fit new trends. Even when it isn't always entirely clear exactly how to act: that action must be taken is, for many investors, beyond question.
"On an emotional level, I can understand that very well," observes Philipp Dobbert, Head of Asset Management at quirion and at Quirin Privatbank. "Something is always happening and seemingly demanding a reaction." The pressure is amplified by the constant background hum of the media. Whether in the newspaper or on social media: everywhere there are tips you haven't yet taken into account.
Better performance through being active?
The problem: trading on the basis of current trends or the expectation of a particular market movement usually goes wrong. Even for the professionals. Take classic actively managed funds, for instance, which aim to beat the broader market through deliberate selection. When you put the performance of such funds up against a comparable stock index, the result is sobering, to say the least.
And anyone who thinks that one fund or another might nonetheless stand out, and therefore relies on best-of lists, is quickly disappointed. S&P Global recently examined once again how consistently equity funds from Europe manage to stay in the top half of the field. Over a three-year period, only 13 percent managed it; over a five-year period, only 6 percent.
Investing without forecasts
In any case, the distinction between "active" and "passive" investment strategies quickly leads you astray. Because you might think: one side does something and the other just sits on its hands. "The essential difference between the two approaches lies above all in the view of whether future market movements can be forecast in any way," Dobbert states. Yet the findings of capital market research are fairly clear on this: "No one can reliably beat the market with forecasts. So it's better not to go down that road."
At quirion, the investment strategy is designed to avoid speculation. It's much more about optimizing the balance between return potential and risk. This is especially evident in the global ETF portfolio. It is not based on any assessment of the possible performance of individual stocks, sectors or regions. Through broad diversification, the investment strategy is geared toward the long-term average return of the world's equity markets. "The global economy is built for growth. Stocks give you a stake in companies and thus in the economy - so with a portfolio like this, you're tapping into global economic growth, so to speak," Dobbert explains.
Focusing on the risk profile
The global ETF portfolio is therefore meant to mirror the performance of the global equity market, not an opinion about particular trends. That means: if, for example, things are going a little worse in the US right now than in the German stock market, the share of US stocks isn't dialed down and that of German stocks dialed up. "We don't reshuffle anything because we think we might improve performance that way. Because that would be pure speculation," Dobbert underscores.
That doesn't mean ignoring what's happening in the market. Because as prices move, the weightings of the individual positions in investors' portfolios shift - for example the ratio of stocks to bonds. When certain thresholds are reached, but at least once a year, these shifts are corrected. "We then sell securities whose weighting has become too large and top up the other positions," Dobbert explains. "That's called rebalancing."
This is the only way to ensure that the investment strategy being pursued continues to fit your individual investment horizon and personal appetite for risk over the long term. Paying attention to these is far more important for the investment strategy than watching price movements. "For how the portfolio is set up, this is a central point of reference," Dobbert emphasizes. "It also means: as long as nothing changes about your risk profile, with our global ETF portfolio you as an investor have no need to take any action with your money."
More about quirion's global ETF portfolio can be found here.
