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Dear investors,
during the year 2014 the DII increased its value by almost 8%. This return was close to the average of the best category of mixed funds with a high proportion of equities, and significantly above the average of all other comparable fund categories. This result is satisfactory, but not outstanding:
GROWTH OF VALUE 31.12.2013 – 31.12.2014 (IN EUR)
However, in January 2015 the DII achieved an extraordinary increase in value by more than 7% in only one month, far above the average of all categories of comparable mixed funds.
GROWTH OF VALUE 31.12.2014 – 30.01.2015 (IN EUR)
AVERAGE OF MORNINGSTAR CATEGORY „EUR AGGRESSIVE ALLOCATION – GLOBAL“ 8,13%
TARENO DIVERSIFIED INDEX INVESTING EQUITIES/BONDS/REAL ASSETS 7,95%
AVERAGE OF MORNINGSTAR CATEGORY „EUR BALANCED ALLOCATION – GLOBAL“ 6,79%
AVERAGE OF MORNINGSTAR CATEGORY „EUR BALANCED ALLOCATION“ 4,36%
AVERAGE OF MORNINGSTAR CATEGORY „EUR AGGRESSIVE ALLOCATION“ 4,26%
3, rue de la Poste • L - 2346 Luxembourg • T + 352 26 86 67 - 1 • F + 352 26 86 67 - 67
E [email protected] • www.tareno.lu • www.dii.lu
SOURCE: MORNINGSTAR GERMANY - FUTURE PERFORMANCE MAY BE HIGHER OR LOWER.
DII NEWSLETTER JANUARY 20158% in a year - 7% in a month
TARENO DIVERSIFIED INDEX INVESTING EQUITIES/BONDS/REAL ASSETS 7,27%
AVERAGE OF MORNINGSTAR CATEGORY „EUR AGGRESSIVE ALLOCATION“ 4.98%
AVERAGE OF MORNINGSTAR CATEGORY „EUR AGGRESSIVE ALLOCATION – GLOBAL“ 4.39%
AVERAGE OF MORNINGSTAR CATEGORY „EUR BALANCED ALLOCATION“ 3.30%
AVERAGE OF MORNINGSTAR CATEGORY „EUR BALANCED ALLOCATION – GLOBAL“ 3.27%
SOURCE: MORNINGSTAR GERMANY - FUTURE PERFORMANCE MAY BE HIGHER OR LOWER.
Good average in the year 2014, top rank since the beginning of 2015 – how can we explain this variability in performance? In comparison with almost all other mixed funds, the DII´s portfolio is characterized by much broader diversification:
• In a typical global mixed fund, an average of 85% of all equities is invested only in North Ameri-can and European developed countries. The share of Pacific industrialized countries (e.g., Japan, South Korea, Australia) as well as worldwide emerging markets (Asia incl. China, Africa, Latin America, Eastern Europe) is correspondingly low, although some of these regions still display a particularly dynamic economic development. In contrast, the share of mature North American and European markets is only 50% of all equities in the DII, with a correspondingly higher share of all other markets, including some natural resources sectors (energy, agricultural products).
• In a typical mixed fund quoted in Euro most bonds are invested in Euro. In contrast, the share of Euro bonds is only 30% of all bonds in the DII, the rest being split among Swiss Francs, US Dollars and Asian currencies.
• On top of that, the DII contains for protection against inflation 12,5% precious metals (gold, silver, platinum, palladium) and 7,5% real estate shares (Europe, North America, Asia).
The DII’s significantly broader diversification lowers the portfolio risk and also generates, in the long run, higher returns through consistent rebalancing (maintenance of a stable portfolio allocation) among the various asset classes. In the short run, however, this broad diversification can also lower returns occasion-ally. This happens when the categories that are overweight in traditional funds perform particularly well, and the additional asset classes highly weighted in the DII perform particularly poorly. This is exactly what happened from September to November 2014. In the summer 2014, the DII was still ranked among the best 10% of its category, but then it was affected to a particularly high extent by the dramatic decline in the price of oil by more than 50%, because high losses occurred not only in energy stocks but also in some emerging markets, such as Russia and Latin America, that are highly dependent on natural resources. The fact that the DII achieved, despite these high losses in some of its portfolio’s important asset classes, still a satisfactory return for the total year, shows that its broad diversification of risk works rather well. It also has to be taken into account that capital market trends in 2014 were extraordinarily favorable for traditional global mixed funds, because US stocks that are highly weighted in most conventional funds were for Euro-pean investors, due to a combination of share price and exchange rate gains, one of the best asset classes of all. It is therefore a remarkable success that the DII, despite its much lower weight of US stocks and its significantly higher weight of natural resources and emerging markets, achieved an equally good result as the average of all global mixed finds with a high proportion of equities.
In January 2015, however, the DII could finally harvest again the fruits of its extraordinarily broad diversifi-cation. The announced enormous inflation of the money supply in the Euro zone spurred gains in European stocks that were also beneficial for traditional European mixed funds. But the associated weakening of the Euro exchange rate generated high additional profits for the DII with its high proportion of precious metals as well as stocks and bonds in other currencies (e.g. Swiss Franks). For this reason, the DII’s return since the beginning of 2015 was almost 3% higher than the average of its fund category. With this result, the DII ranked among the best 5% of all 279 funds in its category: (see http://www.morningstar.de/de/funds/snapshot/snapshot.aspx?id=F00000SCNK&tab=1).
If the DII continues to generate ordinary returns in ordinary circumstances, and extraordinary returns in extraordinary circumstances, this will be sufficient to achieve a top rank in long-term performance. We will keep building upon the advantages of low-cost index funds, broad diversification, and consistent mainte-nance of a stable portfolio allocation, and we thank you cordially for your trust.
Yours sincerely,
Dr. Matthias Kelm ([email protected]) Marc Wagener ([email protected])Tareno (Luxembourg) S.A.
3, rue de la Poste • L - 2346 Luxembourg • T + 352 26 86 67 - 1 • F + 352 26 86 67 - 67
E [email protected] • www.tareno.lu • www.dii.lu
