Banks are more strictly regulated than most other institutional investors. This is clearly reflected in the asset allocation. Photo: Fotostudio Manjit Jari Source: Universal-Investment

360-Degree Analysis: Banks focus on loans

Author: Markus Neubauer, Universal-Investment

The analysis of all money invested in special funds on the Universal-Investment platform provides a broadly representative insight into the investment strategies of various investor groups. Markus Neubauer discusses the investment behaviour of banks, credit institutions and savings Banks.

Markus Neubauer, Managing Director Universal-Investment Photo: Fotostudio Manjit JAri Source: Universal-Investment

Banks are more strictly regulated than most other institutional investors. This is clearly reflected in the asset allocation: While the average equity allocation of all investors invested in the special funds on the Universal-Investment platform stood at almost 32 percent at the end of July 2017, the average equity exposure of banks and savings banks was significantly lower at just over 10 percent. However, to the extent that it is able to do so, the banking industry is placing increasing emphasis on equities. Since March 2017, the equity allocation for the sector’s indirect investments has exceeded the 10 percent mark, much higher than at the beginning of the 360-Degree Analysis evaluation period in January 2012.

Investor behaviour is similar with fund investments. Indeed, fund units (ex-equities and bonds) in the banking industry’s special funds added up to only a mini-share of slightly more than 2 percent at the end of July. However, this is significantly more than was the case in summer last year, when the quota was close to zero. Most recently, the average institutional investor invested more than 12 percent in fund units.

Bond ratio falls below 80 percent again

Bond exposure in the special funds of banks has once again amounted to less than 80 percent since March 2017 with a falling tendency, after the bond ratio climbed to almost 87 percent last year, reaching a new peak within the framework of the 360-Degree Analysis. If one considers the historical data, it becomes apparent that bond ratios for the banking industry’s indirect investments in recent years fluctuated with highs and lows in a range between about 68 percent and almost 87 percent. Meanwhile, an almost constant decline has taken place among all investors as a whole since the 360-Degree Analysis began – most recently, their bond exposure amounted to slightly more than 42 percent.

Lower cash holdings

A comparison of asset quotas reveals that banks and savings banks had parked almost 10 percent in cash investments on average by the end of July, compared with almost 13 percent for investors as a whole – a new record for cash quotas since the start of the evaluation period. In total, cash exposures fluctuated much more strongly in the banking sector – with values of between 5 percent and more than 20 percent – than among investors as a whole.

360-Degree Analysis

Good performance despite investment restrictions

Even though they can invest less in risky assets than other institutional investors are able to, banks and savings banks have performed respectably overall with their indirect investments since the 360-Degree Analysis started. On average, they achieved a return of 2.90 percent per annum over a 10-year period until the end of July, while investors as a whole generated an average annual return of 3.93 percent. However, the shorter the time period one considers, the greater the performance gap between the indirect investments of the banking industry and those of investors as a whole.

360-Dgree Analysis Source: Universal-Investment

Bond funds have the edge over 10 years

Over the 10-year period to the end of July, equity funds were the performance drivers of banks’ and savings banks’ indirect investments with a return of 3.48 percent per annum. However, multi-asset funds and bond funds weren’t far behind: While multi-asset funds produced an annual return of 2.90 percent during the same period, bond funds generated an annual return of 2.67 percent.

In terms of sector weightings in the equities category, it is noteworthy that some banks are significantly overweight in the areas of energy, commodities, industry, health care and utilities compared with investors as a whole. By contrast, the indirect equity investments of banks and savings banks were noticeably underweight in the IT sector, in particular, most recently.

360-Degree Analysis Source: Universal-Investment

Heavy weighting for promissory note loans

Compared to investors as a whole, the banking industry is currently just over 11 percentage points underweight in sovereign bonds.For corporate bonds, the figure is 8.5 percent. In absolute terms, the special bond funds of banks and savings banks allocated a share of about 12 percent to government bonds by the end of July, while the share of corporate bonds stood at about 25 percent.Most conspicuous was the strong overweighting of loans in the banking industry’s special bond funds, where the loan share recently stood at almost 30 percent, while investors as a whole invested slightly more than 6 percent in promissory note loans on average.

The analysis records data on all investments in special funds at Universal-Investment for the period 1 January 2012 to 31 July 2017 and is updated on a monthly basis. The total volume of analysed assets under administration at Universal-Investment currently amounts to about 236 billion euros. This volume is equivalent to a market share of around 15 percent of the 1.554 trillion euros in total special fund assets recorded by the German Investment Funds Association (BVI) at the end of May 2017. 

360-Degree Analysis

Author: Markus Neubauer, Universal-Investment
Date of issue: 10/30/2017