Please note: this article is more than one year old. The views of our CIO team may have changed since it was published, and the data on which it was based may have been revised.

Our experts suggest ways to make your portfolio more resilient, with the aim of safeguarding long-term returns against rising volatility.

During the summer of this year our CIO team assessed the characteristics of an economic late-cycle environment and concluded that it might be best to “stay invested but hedge”.


Historically, they explained, the late-cycle environment has often delivered decent returns as well as higher volatility. So it makes sense under the present circumstances to stay invested – and thereby give yourself the opportunity to benefit from any remaining growth – while taking steps to safeguard the returns your portfolio has generated over the long term.


But what does this mean in practical terms? In this, the first in a four-part series exploring how to “Stay Invested But Hedge”, experts from around Deutsche Bank Wealth Management suggest ways to potentially improve the resilience of your portfolio.


Keep your portfolio unconstrained and appropriately diversified

Christian Nolting, Chief Investment Officer and Global Head of Wealth Discretionary

Our Wealth Discretionary service allows clients to stay appropriately diversified across different asset classes, as the investment cycle evolves. Not only will volatility levels change as we move through the cycle, but the degree and nature of correlations both between and within asset classes will also shift. Active management is therefore an important ingredient to successful portfolio management that tries to create an asymmetric relationship between risk and return in an unconstrained context rather than trying simply to outperform a benchmark.


Take advantage of Risk Return Engineering

Olaf Scherf, Head of Risk Engineering

In turbulent market environments, reliance on conventional risk mitigation approaches – such as diversification, pre-agreed investment responses to market changes, or tactical hedging – may prove insufficient to satisfy investors’ risk objectives, and can significantly contribute to opportunity cost. The Risk Return Engineering service offering (RRE) is a unique selling point of Deutsche Bank Wealth Management, which addresses management of market risk for liquid, transparent portfolios in a holistic manner. This investment solution deploys a probability-based approach getting insights from actual financial data. The ability to estimate forward-looking probability distributions of financial returns in a multi-asset portfolio context, provides transparency on portfolios’ risk-return profiles down to the individual instrument level. RRE systematically and continuously estimates the achievable trade-off between investors’ specific risk tolerance and their portfolios’ return expectations. The introduction of a robust and economically efficient downside protection against the impact of severe losses provides investors with the ability to maintain, on a risk-adjusted basis, increased long-term exposure to assets with higher risks but also higher return expectations.


Take steps to safeguard your long-term returns

Nick Stone, Global Head of Capital Markets

Our Capital Markets product specialists are very close to the financial markets and use a variety of research sources to identify risks and opportunities. They proactively develop investment solutions and trade ideas, and by reviewing client portfolios they can recommend hedging solutions from our wide-ranging product capabilities across equities, commodities, rates, credit and foreign exchange.


Our open architecture means we are able to trade with a significant number of counterparties, giving the client access to best pricing and a wide variety of structures, pay-offs and bespoke solutions that we can tailor to the client’s investment appetite and risk requirements.



Consider increasing your alternatives exposure

Romy Cuadras, Global Head of Fund Solutions 

As our CIO Christian Nolting recently pointed out, “In the current investment environment, alternative investments appear increasingly relevant to many investors.”


Hedge Funds are playing an increasing role in portfolios to create an uncorrelated source of returns to other asset classes owing to factors such as: anticipated increased market volatility; the ‘dispersion’ or wide variety of returns currently being experienced by more conventional asset classes; and the increased correlation between asset classes that used to behave very differently relative to each other.


Before you incorporate them into your portfolio, it is important to be clear about whether they suit your risk appetite as they are not appropriate for everyone; not every hedge fund will be suitable for every investor. It takes a certain level of expertise to assess whether a hedge fund is of high quality. Our experienced Fund Solutions product specialists can help pick the right manager, strategy and vehicle for you in line with your desired return outcome, especially given that Hedge Fund performance has varied in 2018 and manager return dispersion is quite high.



Take advantage of volatility 

Nick Stone, Global Head of Capital Markets

With our wide-ranging product capabilities and our market knowledge we are able to react quickly to market moves to bring enhanced yield opportunities for clients wishing to take advantage of heightened levels of volatility and dislocations within and between asset classes.


Whether you wish to put new money to work or use market moves to enhance your portfolio’s risk-return profile, our open architecture and expertise means that, again, we can offer a wide variety of structures, pay-offs and bespoke solutions, as well as best pricing.




For further guidance on how to ‘Stay Invested, But Hedge’, try watching the other videos in this series:


Part 2 – How to move out of cash

Part 3 – How to fix your fixed income

Part 4 – How to focus your equity investments


For Investors in the Americas:

For informational purposes only. This is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. It is based on information from sources believed to be reliable. No representation is made that it is accurate or complete or that any returns indicated will be achieved.

Alternatives investments such as hedge funds and the Risk Return Engineering (RRE) strategy are only available to “Accredited Investors” as defined in the Regulation D under the Securities Act of 1933 (the “Securities Act”) and “Qualified Purchasers” as defined in Section 2(a)(51) of the Investment Company Act of 1940 (the “Investment Company Act”). Not all products are available to all investors and eligibility requirements may apply.

Clients considering the RRE strategies described herein should consult with their tax advisors regarding the potential tax consequences relating to the RRE strategies, including with respect to the use of options as part of these strategies. Derivatives and options are complex instruments that are not suitable for all investors, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. For more information, please read the Characteristics and Risks of Standardized Options at the following link: or contact your Relationship Manager for a physical copy.

Alternative investments such as hedge funds are speculative and involve a high degree of risk. Alternative investments are not available to all Deutsche Bank Wealth Management account types. Conflict of interest disclosure: When considering and making recommendations of alternative investment vehicles to clients, Deutsche Bank Wealth Management will consider and recommend only those vehicles that agree to pay to Deutsche Bank Wealth Management fees (or "retrocessions") that are based on the amounts that clients invest in those vehicles. In all cases, Deutsche Bank Wealth Management will disclose to the client prior to his/her investment in an alternative investment vehicle the terms of Deutsche Bank Wealth Management's compensation arrangements with that vehicle.

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