Assenagon CIO in an interview: “While the US is on an austerity course, Europe is stimulating the economy”

Market-neutral or long-short strategies help us to specifically exploit opportunities without unnecessarily increasing market risk. The targeted use of derivatives allows us to actively manage risks, for example through hedging or relative value positions.

Assenagon has increased its equity allocations in conservative mandates from under 30 percent to over 40 percent and holds almost two-thirds in balanced strategies. What indicators and risk models support this?

Romig: The allocation decision is made free from benchmark constraints and is based on an internal analytical approach that has been developed and continuously refined over the years. We combine macroeconomic factors, sentiment data, positioning analyses, and fundamental valuation criteria. Although the macroeconomic environment remains challenging, sentiment- and positioning-related indicators provided entry signals.

What are these allocations likely to be at the end of the year?

Romig: Due to the multitude of uncertainties, it's impossible to make a reliable statement about the target allocation by the end of the year. Our strategy relies on allocations not being planned statically, but being continuously adjusted to current events based on current market data and risk assessments.

You've placed greater emphasis on Europe. What specific political developments or reforms in these countries do you consider crucial to justifying this optimism?

Romig: Our European positions are based on Europe's currently more attractive valuations compared to the US, the significant investor reluctance toward Europe that prevailed until recently, and the increasingly improving political momentum. While Europe is currently stimulating the economy, the US is still more on an austerity course, as the establishment of the Department of Government Efficiency, or DOGE for short, has demonstrated.

You emphasize that with the right investments, even bear markets can lead to above-average returns. What specific examples do you have in mind?

Romig: Historically, investments made during bear markets, i.e., after reaching the -20 percent mark, have shown above-average returns – especially over 3, 5, and 10 years – with median returns of up to 111 percent after 10 years. These data underscore that countercyclical investments offer attractive long-term entry opportunities during periods of stress.

Inflationary pressure and lack of fiscal discipline: How do these macroeconomic concerns affect your asset allocation?

Romig: Inflation and debt problems are limiting the attractiveness of traditional government bonds. Instead, we focus on equity themes and regions with attractive valuation metrics, short maturities in the fixed income sector, and opportunistic derivative strategies with asymmetric risk-reward ratios.

How is Assenagon preparing to cushion such unforeseeable events in its portfolios? How did this work with the coronavirus and the Russian attack on Ukraine compared to the broader market?

Romig: Unfortunately, we don't have a crystal ball either. Thanks to our short communication and decision-making channels, which aren't tied to lengthy investment committee formalities, our team processes information very quickly and, thanks to the inherent degrees of freedom of our strategy, is able to adapt the portfolio promptly to changing market conditions.

How do you communicate to your investors with conservative risk-return profiles the opportunities for short-term tactical adjustments for security and return?

Romig: With Assenagon Multi Asset Conservative, we manage a conservative fund with a corresponding risk-return profile and communicate this clearly to our investors. We operate flexibly within this strategic framework, which has proven very successful over the past few years, as evidenced by numerous awards. The attached chart clearly demonstrates the low volatility of our fund while simultaneously delivering above-average returns compared to its peer group.

Speaking of which, how do you integrate psychological factors into your communications and investment strategy? Can this help you build investor confidence and avoid panic selling?

Romig: We always keep our clients' interests in mind when making our investment decisions. Our practice of revising decisions at short notice has enabled us to successfully manage crises over the past decades. This is based on a disciplined approach, decades of experience, and the mutual trust within our fund management team. In the past, we have managed not to disappoint our investors, even in times of crisis. We need this trust and continually strive to repay it to our investors.

About the interviewee:

Thomas Romig is Chief Investment Officer (CIO) Multi Asset at Assenagon.