DWS Invest German Equities TFC

Analyst Report
Morningstar's Take

by Natalia Wolfstetter

The fund’s seasoned manager, Tim Albrecht, has long followed a flexible and bold investment style. While the approach can court volatility and temporary underperformance, he has the experience necessary to execute this strategy, and in the long run, the fund has rewarded investors for the higher risk taken. That said, the funds’ ownership of Wirecard shares, its largest holding from October 2019 to April 2020, has shone a light on some weaknesses in risk management, which lower our conviction in the process. With the greater focus on fees and benchmark-relative performance expectations in our enhanced ratings framework, the fund’s Morningstar Analyst Rating on the fund’s clean and institutional share classes is downgraded to Bronze from Silver. The more expensive retail share classes land at Neutral. Top-down views form the backdrop to the fund’s strategy, driving sector allocation and the fund’s net equity exposure, which moves in a range between 90% and 130%. The manager is also willing to express his single-stock convictions in the portfolio aggressively, as evidenced by the fund’s position in Wirecard, which was boosted to more than 9% in October 2019, a significant overweight compared with the stock’s 1.2% weighting in the fund’s CDAX benchmark. Strong share price performance drove the stock’s weighting to 12% of assets at January-end 2020. Exposure remained above 10% of assets for several weeks in the first quarter of 2020, as the manager wanted to limit the negative market impact from trimming the position more quickly. Regulatory requirements were not breached (the letter of the regulation, if not the spirit), as the exposure beyond the regulatory limit of 10% was switched into a certificate replicating the performance of the stock. This approach, however, indicates some shortcomings related to managing the concentration and liquidity risk resulting from the volatility of Wirecard’s share price and the strategy’s large asset base. Nonetheless, we draw some comfort from the manager’s intention to keep the weighting of controversial stocks within 4 percentage points of the benchmark's going forward. At 3.9% as of May-end, the weighting in Wirecard was back within that limit when its share price collapsed on June 18, 2020, which curbed the negative performance impact, while performance would have taken a massive hit if exposure had been as high as in the first quarter.

Morningstar Analyst Rating™
To find out how Morningstar rates a fund click here.
Portfolio RoleGerman equities can play a supplementary role in a well-balanced portfolio.
Morningstar Pillars
PeopleAbove Average
Manager continuity, coupled with the team's size and experience, leads to an Above Average People rating.
The partial listing comes with some benefits, but weaknesses remain.
ProcessAbove Average
We have become more concerned with the risks courted by this approach.
Despite recent weakness, the fund’s long-term track record remains strong.
Morningstar Analyst RatingMorningstar evaluates funds based on five key pillars, which it's analysts believe lead to funds that are most likely to outperform over the long term on a risk-adjusted basis.
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