In light of the current fiscal and monetary concerns that are gripping the minds of investors around the world, Institutional Asset Manager asked the heads of some of the world’s leading asset managers to share their thinking on portfolio management trends post-Lehman and beyond 2011 in concise fashion. Georg Schuh (pictured), CIO, DB Advisors, responds:
"We are seeing more institutional investors adopting total-return targets, instead of managing their assets relative to traditional benchmarks. This trend has gathered momentum in recent quarters and will continue to do so.
"Total-return targets give a portfolio manager much greater flexibility: for example, it is possible to de-risk significantly in times of increased political certainty, or even hedge duration to zero, if appropriate. A total-return focused manager can also express views on specific countries within a region more easily than a manager constrained by a benchmark.
"Another important trend is that benchmark-oriented investors are increasingly turning away from the typical market-weighted bond indices, which tend to overweight the most indebted countries. There is a growing move toward benchmarks that incorporate fundamental long-term parameters like GDP growth, debt-to-GDP, sovereign deficit positions, and even demographic patterns.
"Third, the sovereign debt crisis has put new demands on fixed income managers. For instance, they need to rethink the way they research sovereign issuers. Following the downgrades of the European peripheral countries, sovereigns like Greece should be treated (from a research perspective) as emerging market countries.
"To that end, DB Advisors has moved coverage of the peripheral European countries to our Emerging Markets team, which has the most appropriate analytical expertise. Second, methodologies used for credit analysis – i.e. to assess corporate bonds – are now extremely useful in evaluating lower investment-grade sovereign issuers."