It’s Tough to Invest in Germany, Even for a German-Focused Fund

(Bloomberg) -- German equities are difficult to invest in right now, with things likely to get worse before getting better, according to the manager of a 4.9 billion-euro ($5.4 billion) fund at Deutsche Bank’s DWS unit.

As Europe’s largest economy struggles, Tim Albrecht, who manages 14.2 billion euros in assets including the flagship fund DWS Deutschland, is pessimistic. While his fund is obliged to invest in German stocks by design, he wouldn’t offer a short-term buy recommendation on the country’s stock market right now, he said in an interview.

“The summer of profit warnings shows that Germany has a structural and not a cyclical problem,” Albrecht said. “The term ‘economic engine’ is the wrong description for Germany in a European context at present.”

An investment approach focused on sectors has become difficult as traditional Germany industries face fundamental challenges. Automotive stocks are adapting to an electric-vehicle future, industrials and chemicals are highly reliant on exports and even real estate is looking at social headwinds, such as calls for more rental restrictions.

“There isn’t much room left, and stock picking is crucial,” Albrecht said. Only 5 of the 30 stocks in Germany’s benchmark DAX Index are easy to recommend as a buy, he added, without naming the five stocks.

Software maker SAP SE, insurer Allianz SE and conglomerate Siemens AG hold the top positions in Albrecht’s fund. The biggest sector allocation, at 21%, is for financial stocks, according to data compiled by Bloomberg.

Negative yields and monetary quantitative easing seem to have reached their limits in propping up the economy. Companies aren’t keen on investment, despite low yields, when demand isn’t there, Albrecht said. On the contrary, low yields can make things worse, with too many companies on artificial life-support and by increasing price pressure on the ones fighting to survive.

Short-term pessimism aside, Albrecht said he’s confident that equities are the place to be in the long run. German economic growth and hence stock market returns may be lower than in the past and investors will have to adapt to that. Still, the situation is different than in the aftermath of the global financial crisis, as companies are cautious rather than suffering a full-blown shock.

“Should geopolitical tensions ease and if the U.S. and China reach a compromise, then the picture would change and markets could trade higher quickly,” he says.

Potential economic stimulus from the German government is welcome but will most likely come too late to save the country from a technical recession.

“One can be glad that the government has finally recognized the danger the economy is facing,” Albrecht said.

To contact the reporter on this story: Jan-Patrick Barnert in Frankfurt at jbarnert3@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Monica Houston-Waesch

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