“Broad diversification has passed the stress test of the financial crisis”
Due to the financial crisis, recent months have been marked by very turbulent conditions on the capital markets and significant losses for investors. Would you still say that investment funds are a safe investment nowadays?
Dr. Mathias Bauer: “Of course they are. Even though investment funds were affected extremely negatively by the financial crisis, in terms of volume and performance, nothing has changed in terms of their safety as an investment instrument. There were hardly any real defaults of funds due to toxic securities and the like. In principle, the financial crisis has really highlighted that the diversification of risk which is legally mandated for investment funds is effective in extremely difficult market conditions as well. One could say that the principle of broad diversification has passed the stress test of the financial crisis. Funds continue to be one of the safest investment instruments and fund investors enjoy a very high degree of protection. The financial crisis has not changed this at all.”
What impact has the financial crisis had on how you manage your funds?
Mag. Gerhard Aigner: “We remain committed to our investment philosophy and see our basic mission as active managers in the generation of additional returns for our customers. Of course, corrections on the markets also affect our products as well. But we don’t just roll with the punches and move with the ups and downs on the market. Our fund managers actively respond to the specific developments, and as a result we are often able to achieve better performance than the (passive) market indices, even during very negative phases on the markets. Indeed, active management is more important than ever during bad periods on the markets, because over the long term, an advantage of just a couple of percentage points or even minimally smaller losses can have a major impact on the overall performance of an investment. And one must always recall that funds are really an investment vehicle with a long-term horizon.”
Have any lessons have been learned from the crisis?
Mag. (FH) Dieter Aigner: Of course. We have adjusted our strategy; risk management has become much more important, as many risks, especially external risks, have had to be identified and reassessed. We have always focused strongly on strict risk management, and even before the crisis it was completely normal that every transaction was reviewed for compliance with statutory and company-internal regulations every day. We have continued to fine-tune our comprehensive risk management activities and also developed additional safety nets.
For many investors, the most interesting question right now is obviously: what is the best asset class for investment?
Mag. Gerhard Aigner: Corporate bonds will remain attractive for some time to come, as the massive sell-off that occurred in 2008 has pushed valuations to extremely low levels. Aside from recovery seen amongst higher quality issuers recently, these bonds still offer very appealing return opportunities at a level of risk which is lower than for equities. Consequently, corporate bonds also feature a very attractive risk-return relationship right now, both in absolute terms and compared to equities and government bonds, and should not be left out of any well balanced investment portfolio.
Another perennial favourite, which is still a great investment, are well diversified fund portfolios, which are invested in sub-funds: good examples of this can be found in our Raiffeisen conservative, growth and balanced funds. The value added that these funds offer to investors at relatively low cost is considerable, as these funds feature constantly optimised, well-diversified portfolios, and easily understandable, very comfortable asset management, which investors do not have to actively participate in. Because expert fund managers already react to the present changes on the markets. And thanks to the wide diversification, these portfolios offer better possible returns with lower risk.
This brings us back to the concept of broad diversification. Earlier you mentioned that investor in funds enjoy a high degree of protection. What does that mean specifically?
Dr. Mathias Bauer: Funds are legally mandated to pursue benefits for the investors to whom they bear fiduciary responsibility, which means that they may only act in the investors’ best interests. Above and beyond the legal framework, funds in Austria have voluntarily agreed to comply with wide-ranging quality standards, which for example include clearly defined regulations on conflicts of interest. Funds are transparent: they are valued on a daily basis and exhibit a very high degree of cost transparency. Furthermore, the capital in investment funds qualifies as “separate assets” which means that the invested funds are always owned by the unitholders and cannot be used to satisfy any claims brought by creditors against the fund management company. During the last few months, this last aspect has become considerably more important.
