Deutsche AM Multi-Asset Funds Cut Europe Holdings to Record

  • Just a third of multi-asset funds invested in the continent
  • Move is in response to low yields, heightened election risk

When it comes to Europe, Deutsche Asset Management is positioned more cautiously than ever in its multi-asset funds.

The region’s low-yield environment and uncertainty before a slew of elections this year has prompted the investment arm of Germany’s biggest bank to cut its European holdings in the funds to the lowest on record.

“The potential risk of a negative outcome in the elections is underpriced,” multi-asset fund manager Christian Hille said in a phone interview. “With rates where they are and with rates differentials being where they are, it’s more attractive to invest in assets outside Europe.”

Deutsche Asset Management, a unit of Deutsche Bank AG, reduced the share of European holdings in its 100 billion euro ($106 billion) multi-asset portfolios to about a third from more than half normally, according to Hille, who helps manage the funds.

Election risk has created yet another reason for global investors to steer clear of European assets already rendered unattractive by sluggish growth and some of the lowest bond yields in the world. In the Netherlands, France and Germany, which all face elections this year, populist candidates are stoking fears of a breakup of the euro.

Read more about populism in this QuickTake Q&A

After the surprise election of U.S. President Donald Trump and the U.K. Brexit referendum last year, “it’s difficult to tell the outcome from polls,” Hille said. The European Commission warned on Monday that economic recovery in the European Union is “assailed by risks”.

Hille favors the dollar as well as dollar bonds of emerging-market nations and those of speculative-grade U.S companies. Stuttering growth in the 19-nation region, set to expand at a slower clip than Brussels expected last year, highlights a gap of 210 basis points between Treasury benchmark yields and German bunds.

While Hille thinks European equities look quite attractive fundamentally, he’s reluctant to commit while the election risk looms. The Stoxx Europe 600 Index is trading near its cheapest price-to-book ratio versus U.S. peers since 2003.

“A lot of investors are still waiting for clarity on the elections,” Hille said. “Once that cloud is cleared, there’s clearly a case for more European equities.”

— With assistance by Cormac Mullen, and Aleksandra Gjorgievska

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