DWS Says "Time for Multi Asset"
DWS writes "Time for Multi Asset," which tells us, "After years of minimal interest rates, investors have been piling into money-market funds since 2022 to take advantage of higher rates. Now is the time to rebalance and diversify." Their piece explains, "After years of dormancy, money-market funds have awakened with a surge over the past three years: since the beginning of 2022, some EUR 1,900 billion have flowed into money-market funds globally, an increase of 30.4%. Funds in other asset classes suffered, especially balanced funds.... However, due to the turnaround in interest rates and the heightened economic and political uncertainty following the U.S. elections in our opinion it is the right time to diversify again." It continues, "In our view, this means that investors in money-market funds are exposed to significant reinvestment risk over the next year or two, as money-market-fund rates track policy rates closely. Historically, there is another problem with money-market funds for long-term investors: their performance has lagged that of many other asset classes over a full cycle, and in many periods they have not even managed to preserve their capital in real terms. Such a period may be coming again; after all, the capital market is currently pricing in long-term inflation of just over two percent per year.... With last year's turnaround, the ECB's deposit rate has already fallen by a full percentage point. After the strong demand for money-market-related solutions in recent years, investors now face the challenge of having to reinvest their savings at lower interest rates in the medium term. While bonds and equities are an important building block, they remain only part of the solution." DWS adds, "To persist in the current market environment, it is essential to combine different asset classes. However, this also adds complexity to portfolio construction. The optimal mix of investments in the portfolio changes with the market environment and needs to be continuously adjusted. The more asset classes are combined, the greater the number of risk factors that influence each other. These relationships are not static but change over time. We believe that diversification is always important, but especially in the current market environment, where return expectations, the risk environment and expected correlations make it even more compelling. The right time for multi-asset is now."
