Guarantee fund
Guarantee funds are investment funds which, at the end of the specified contract period, guarantee either at least the repayment of the originally paid-in investment amount (usually without a front-end load / premium ), a certain percentage of it (e.g. 95 percent) or maximum levels that have been reached in the meantime.
Overview
Guarantee funds with a limited term promise the minimum repayment amount at the end of the term, guarantee funds without a limited term promise minimum repayment amounts on periodically recurring reference dates.
Before the end of the term (for funds with a limited term) or between the guarantee dates (for funds without a limited term), the price of the fund may also fall below the issue price .
The idea of a guarantee product is to enable risk-averse investors to participate in the earnings opportunities of high-risk asset classes ( stocks , raw materials, real estate, hedge funds, etc.). This security is bought with a lower return compared to a direct investment.
The provider of guarantee funds designs the fund in such a way that the fund assets on the respective guarantee date are, if possible, never below the promised minimum value. Two common protection concepts can be used for this:
The simplest form of a hedging strategy is to invest the majority of the investment amount in bonds (the simplest is zero coupon bonds ), enough so that their value with the interest income at the end of the term reaches the guaranteed repayment. In other words: the present value of future guarantees is now invested securely. The remaining part of the fund's assets is then invested in options on the underlying asset. Options with a cap or averaging (Asian options) are often used.
The second important form of hedging strategy is based on a dynamic model from the 1980s, Constant Proportion Portfolio Insurance (CPPI for short). As a result of the various market crises, each provider has improved its CPPI model and has often given it its own name (including “FPI” at DWS or “Konvexo” and “Immuno” at Union Investment). The basic idea of the CPPI model is always retained: part of the fund's assets are invested securely (fixed-income investments or money market) and the other part is invested in the risky asset class (typically: stocks). In contrast to the first form of protection, however, the entire present value of the future guarantees does not always have to be invested with a fixed interest rate / securely and, depending on market movements, money is shifted from safe to risky fund assets and sometimes vice versa.
Over the same period and with the same high-risk investment universe , both hedging strategies can lead to very different investment successes. Among other things, the CPPI model is by definition "path-dependent", i. H. The investment success of the guarantee fund is not only determined by the investment success of the underlying market, but also by the fluctuations with which the underlying market reached its value on the guarantee date. This also results in the greatest weakness of the CPPI model: the risk of the “cash lock” or the “pension trap”. In this case, the guarantee fund is completely invested in safe investments and will no longer be able to invest in the risky investment until the next guarantee date. Therefore, only the guaranteed value on the reporting date is achieved, and the fund investor cannot benefit from any (stock) markets that may rise again. How much the fund investor will participate in the stock market, for example, cannot be said in advance with the CPPI model. Even during the term, the relationships between the development of the risky investment and the development of the fund price are very complex.
The first protection model, which mostly uses options, can also result in "path dependency" depending on the type of option. For example, if Asian options are used to participate in the (stock) market. The risk of the “cash lock” or the “pension trap” does not usually exist with options.
On the other hand, CPPI models can be more profitable than option strategies in steadily increasing markets.
In the meantime, some funds are working with a high level protection: at regular intervals (e.g. monthly) they check whether the unit value has reached a new high. If this is the case, it is guaranteed that at least this amount will be paid out on the guarantee date. Contrary to intuition, a guarantee fund with a maximum guarantee will be more defensive than a comparable fund without a maximum guarantee, and it will participate less in rising (stock) markets. This arises because with each new high of the fund price, more must be invested securely to secure this fund price, and thus the proportion of risky money invested (e.g. in shares) becomes smaller.
In addition to the guarantee funds, there are also capital protection funds, which can theoretically work with the same protection concepts as a guarantee fund. The difference is that a capital protection fund does not guarantee that the target minimum values will actually be achieved. If the hedging concept fails, the investor bears the risk of loss.
Criticism from consumer advocates
Consumer advocates criticize the high costs of guarantee funds because of their return-reducing effect. This is especially true when interest rates are low. As a cheaper, more transparent and more profitable alternative, they recommend investing only a small portion in risky investments and the rest e.g. B. to invest securely in time deposits.
Although the term “guarantee” appears in the product name, guarantee funds involve risks. The investment capital as a special fund is not part of the fund company's balance sheet, but the guarantee depends on the solvency of the guarantor. In any case, the guarantee is not a statutory or state guarantee, as is the case with deposit-protected investments or government bonds, so that there is a risk of loss through the back door if the guarantor should go bankrupt. The investor must then keep himself harmless from the value of the financial instruments with which the fund company tries to ensure that the guarantee does not have to be used. These can also involve a risk of failure, e.g. B. If these are futures contracts, there is a counterparty risk . In contrast to, for example, guarantee certificates , the repayment does not depend solely on the solvency of the issuer.
If the shares are sold prematurely, special fees are often charged. There is also a risk of additional losses, because with many funds the capital is only guaranteed at the end of the term, so that - just like with bonds - there is a price risk in the meantime .
Union Investment guarantee funds have been criticized for the practice of merging them into newly launched funds shortly before expiry, so that investors had to take action within a period of six weeks in order to get their capital without deductions on the actual expiry date.
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- ↑ http://www.test.de/Garantiefonds-Ein-eigener-Anlagemix-ist-besser-4608402-0/
- ↑ http://www.n-tv.de/ratgeber/Garantiefonds-zum-Selbermachen-article10378791.html
- ↑ Peter Bloed: What is important for guarantee funds. In: Focus Online . April 23, 2013, accessed October 14, 2018 .
- ↑ Money guide: Guarantee fund ( Memento from February 20, 2013 in the Internet Archive ), broadcast on February 16, 2013
