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Change of investment strategy for Allocation Stable

Following changes in the investment philosophy, Danske Invest Allocation Stable will be much better suited to delivering a stable return in the current low interest rate environment, where investors risk falling bond prices.

The current low interest rate environment presents real and difficult challenges for many investors. The trend of falling global interest rates has actually been around for many years but geared up to a new level after the financial crisis in 2008 – and even though European interest rates have been rising since bottoming out in April this year, interest rates are still very low from a historical perspective.

“It is our belief that the overall potential for price appreciation in the bond market is gone. Current returns on bonds are low, and going forward bond investors risk being hit by falling prices if interest rates rise,” says Henrik Fænøe, head of products & securities at Danske Invest. 

So the question is: what should you as an investor do – and what would be a feasible strategy in the current low interest rate environment with potentially falling bond prices ahead? These important questions are the primary reason behind Danske Invest reshaping the investment philosophy of Danske Invest Allocation Stable.

The objective of the fund is to seek capital growth through a conservative long-term investment strategy, and bonds have historically been the primary asset class in the portfolio allocation.

The new investment strategy
To achieve the aim of securing a stable return with low risk going forward, the following changes have been made to the investment philosophy as of March 23rd.

*We have reduced the interest rate risk of the fund, making the portfolio less vulnerable to rising interest rates.

*We have shifted our focus to income generating strategies – investment opportunities with a clear focus on recurrent cash flows tend to be more secure, since the income element will continue regardless of market developments. Examples include credit bonds with coupons and high dividend equities.

*We have increased the focus on portfolio diversification. For this reason we have expanded the investment universe to include long/short strategies, equity risk premia and FX carry trades.

*We have even more focus on return stability – in the new set-up we are aiming at a yearly return of around 3-5%, with low risk. Hence we are focused on risk limitation, i.e. low volatility and downside protection. You should of course be able to find higher return expectations elsewhere, but that would most probably be at the expense of higher risk.

*We still manage the portfolio actively, promptly reacting to market developments by adjusting the portfolio according to our current world view.      

“We have a clear focus on income generating strategies while at the same time reducing interest rate risk, and we strongly believe that we have created a much stronger portfolio for current market conditions,” says Henrik Fænøe.
 

 

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