Even clients with the most defensive risk profile stand to lose more than -12 per cent at Dutch asset managers this year. “Defensive clients have 2008 experience in their portfolios. And according to many, we are not even at the exit yet.”
As of this quarter, all five risk profiles are on average at double-digit losses, the Asset Management Yield Index (VBR Index) for the first three quarters of this year shows. The most aggressive risk profile achieved a return of -16.5 per cent over that period, the most defensive -12.2 per cent.
These are averages of 70 Dutch asset managers and banks, which submit their returns to Vermogensbeheer.nl. The outliers run even further into the red. At the most defensive profile, Koen Laarhoven of Vermogensbeheer.nl saw losses of 15 and 17 per cent pass by, at the most aggressive profile even a loss of 37.5 per cent.
“Considerable fire”
It is worrying, Laarhoven said, that clients classified in the defensive or very defensive risk profile are now left with a portfolio that is doing worse this year than in 2008. “Yes, rising interest rates are a major reason, but have asset managers correctly assessed bond risks?”
CFA VBA annually publishes the Risk Standards for Investments, in which it gives a range in standard deviation for each asset class, the risk measure for risk and volatility. For 2022, the professional group assumed a standard deviation of 3 to 5 per cent for AAA-AA government bonds from the EMU and a standard deviation of 3 to 7 per cent for hedged global government bonds
The trade association uses historical data to estimate risk parameters. And agrees in the paper that the risk measure “will often underestimate the actual risk at the time of stress in financial markets.”
“Some managers did warn in recent years that it was no longer accurate,” said Laarhoven. “That bonds became too risky when governments started acting as buyers and interest rates kept falling. For aggressive profiles, high volatility is a risk that comes with it, but it should not be so for defensive profiles. You can actually call it a decent fire.”
On the savings account
He outlined an imaginary client with a short remaining investment horizon. Someone who has been scaled down to a defensive profile because of the short time to retirement. And has now suddenly seen 12 or maybe 15 per cent of his assets evaporate in less than a year. A client who may not have the time to wait for the losses to be recouped. “We have a serious problem on our hands,” said Laarhoven.
In some cases, the pain is somewhat less severe. Several managers have bought inflation linkers, for example. Other managers advised clients with a defensive profile to (temporarily) put more assets in their savings accounts and invest the rest only in equities, because the risk-return ratio of the interest rate component was no longer right. “The fact is that within defensive portfolios, we really fell through 2008 this quarter,” said Laarhoven. “And according to most, we are not even at the exit yet.”
Investment Officer publishes an update of the Asset Manager Yield index from Vermogensbeheer.nl after the end of each quarter. This page can be found via the menu bar under the IO Research tab. On this page, you can access the average net returns by investment profile for the past quarter and/or full years up to five years back at any time.