An investment strategy is the structured framework that guides the investment process. It defines how and where capital is allocated, which level of risk is taken, and which objectives are pursued. Whether the aim is capital growth or capital preservation, a strategy determines which asset classes (such as equities, bonds or real estate) are included in a portfolio, how they are weighted and when reallocations take place. It must always fit the individual investor. A suitable strategy reflects both the risk profile (personal risk tolerance) and the investment horizon (for example five years for short-term goals or more than twenty years for long-term objectives).

Several terms appear frequently in this context. Diversification refers to spreading capital across different asset classes, regions, sectors or securities in order to reduce risk. This helps avoid dependence on the performance of individual positions. Volatility describes the magnitude of price fluctuations in markets or securities. A sound strategy defines how such fluctuations are managed. In summary, an investment strategy brings discipline and structure to the investment process and helps prevent emotional or impulsive decisions.

In the world of investment strategies, there are two fundamental philosophies: Active and passive investing. Active strategies rely on portfolio managers who analyse markets and make discretionary decisions with the aim of outperforming a benchmark. Passive strategies replicate a market index, for example through an equity ETF that mirrors the DAX, and therefore reflect broad market performance. Both approaches come with advantages and limitations.

• Passive index investments are typically cost efficient and transparent. Their popularity has increased significantly over recent decades. In 2023, passive funds worldwide managed a similar level of assets as active funds for the first time. At the same time, traditional index funds can entail concentration risks. In major equity indices, the top ten constituents can represent 30 to 40 percent of the total index weight in certain phases. As a result, the index, and any ETF tracking it, depends heavily on a small number of large companies. True diversification is no longer given. Similar issues arise in fixed income markets: Bond indices often weight issuers with the largest outstanding debt more heavily. This does not automatically imply a higher default risk relative to issuers with smaller index weights, since risk depends on factors such as credit quality, collateral and maturity structure. It is also important to consider that when markets decline, the index declines as well. A passive product has no mechanism to adjust risk proactively.
• Active strategies offer greater flexibility. An active fund may reduce risk in turbulent markets, for instance by lowering equity exposure or avoiding specific sectors. It is not bound by index rules. Benchmark independence allows managers to hold higher cash levels or invest in niche segments when appropriate. This enables active managers to pursue opportunities beyond the major benchmark constituents and avoid risks that a pure index approach must accept. For example, if a large bond issuer is downgraded from investment grade to high yield (a so-called fallen angel), many index funds are required to sell the position, which can put pressure on prices. An active manager may use such situations to enter at more attractive valuations and benefit from a potential recovery. Active management typically involves higher fees, but skilled managers can add value by reducing losses in challenging periods and generating more stable long-term returns.

There are also hybrid solutions such as robo-advisors. These typically invest in ETFs and allocate portfolios systematically according to predefined algorithms. They offer convenience and low costs, but lack the qualitative judgement and flexibility that experienced managers can apply in complex market environments.

The principle of diversification is straightforward: Spreading investments across different areas helps reduce concentration risks. This means allocating capital across multiple asset classes (such as equities, bonds, commodities or real estate), regions (for example the United States, Europe or emerging markets) and sectors (including technology, healthcare or industrials). Losses in one segment can be offset by gains in another. The objective is to reduce dependence on individual investments and to lower overall portfolio risk.

In practice, many investors rely on Multi asset strategies. Multi Asset funds combine various asset classes within a single portfolio. Such a fund may hold equities, bonds, gold and selected real estate investments. The advantage is built-in diversification, with professionals managing allocation and rebalancing according to market conditions. Multi asset strategies are particularly suitable for private investors who prefer not to adjust their portfolio continuously yet want access to different sources of return.

A broad allocation tends to show its strengths in uncertain periods, for example during economic slowdowns or geopolitical tensions. If equity markets decline sharply, more defensive components such as bonds or gold can help stabilise the portfolio. Diversification should, however, not be misunderstood. Holding a large number of positions does not automatically result in effective diversification. If many holdings are highly correlated, the benefits are limited. The quality of diversification is what matters.

Hidden concentration risks are common in seemingly broad indices. As a result, alternative weighting approaches, such as equal-weighted indices, can provide a more balanced exposure. Alternative asset classes may also enhance diversification. These include infrastructure, real estate, private equity and, as discussed in the next section, volatility as a distinct source of diversification.

Volatility, meaning the magnitude of market price fluctuations, is often viewed as a measure of risk. However, sophisticated investors can use volatility strategically. There are specialised volatility strategies that aim not only to withstand fluctuations but also to generate protection or return from them. Broadly, two categories can be distinguished.

• Volatility premium strategies (also referred to as income-oriented approaches):
  These strategies seek to capture risk premia embedded in volatility markets. A common observation is that implied volatility in option prices often exceeds the realised volatility observed later. Approaches such as option-writing strategies or certain structured solutions aim to harvest these premia and generate a steady return stream. The focus is on regular income rather than explicit hedging.
• Long volatility strategies (diversification strategies):
  These approaches benefit from rising volatility, particularly in market stress periods. When equity markets decline, volatility typically increases. Long volatility strategies, for example via volatility futures or selected option structures, can generate gains precisely when traditional assets experience losses. They therefore function as a form of insurance within a portfolio. Dedicated long volatility funds require specialist expertise, as volatility is a distinct asset class with its own dynamics. While pure volatility funds are less common for private investors, elements of these approaches are incorporated into certain Multi Asset or Absolute Return solutions.

The key point is that volatility does not need to be a disadvantage. When used appropriately, volatility strategies can help smooth a portfolio’s overall risk profile and contribute to reducing maximum drawdowns.

Income strategies aim to generate regular cash flows from a portfolio, for example through interest payments, dividends, capital gains or other distributions, without relying on capital depletion. A classic approach is the dividend strategy, which focuses on companies with reliable and sustained dividend payments. These tend to include large utilities, telecommunications firms or REITs in the real estate segment. While this can provide a consistent income stream, dividend-paying equities remain subject to market fluctuations, and dividends are not guaranteed.

Another example is a Multi Asset income strategy that seeks to generate income across several asset classes. Such a portfolio may combine dividend-oriented equities, corporate and high-yield bonds and covered-call strategies (equities combined with written call options to capture option premia). This diversified approach helps spread risk across multiple sources of return.

Risk management is essential in any income strategy. Pursuing excessively high yields can compromise capital stability, particularly if the underlying income sources are not sustainable. Well-designed income strategies prioritise resilient return drivers such as rental income, bond coupons or infrastructure cash flows and avoid drawing down capital to fund distributions.

Income-oriented investors typically value stable returns and low drawdowns, particularly when income is intended to support living expenses during retirement. The balance between return and risk remains central. Metrics such as the Sharpe ratio help assess the efficiency of returns relative to risk, while maximum drawdown is an important indicator for evaluating how well a strategy can protect capital during market stress.

Every investor is different, which is why no single strategy is suitable for everyone. Two key factors play a central role: The individual risk profile and the investment horizon.

• Risk profile:
  This describes how much fluctuation and potential loss an investor is willing and able to tolerate. Common categories include conservative, balanced and dynamic. A conservative investor prioritises low volatility and accepts lower return potential. A dynamic investor tolerates larger fluctuations in pursuit of higher long-term growth. Many investment solutions are structured according to such risk levels, for example defensive, balanced or dynamic approaches. It is important to be realistic: Investors who struggle with drawdowns of 15 percent should avoid pure equity strategies. The risk profile also includes the ability to understand more complex products. Investing in strategies that are not well understood can lead to poor decisions in periods of stress.
• Investment horizon:
  This indicates how long the capital can remain invested. Someone saving for retirement in thirty years has a very different horizon than someone planning to purchase property in three years. Longer horizons allow investors to tolerate more short-term volatility and allocate a higher share to assets with greater return potential. With shorter horizons, stability and liquidity become more important. This is reflected in lifecycle investing, which refers to adjusting the investment strategy as circumstances change over time. Typically, younger investors allocate more to growth-oriented assets, later shift toward a balanced mix and become more defensive as the withdrawal phase approaches. This supports disciplined capital accumulation in the early years and capital preservation closer to retirement.

Personal objectives and values also play a role. Some investors prioritise sustainable or ethically aligned investments and may exclude certain industries. Strategy and values should be aligned, but an overly narrow focus on specific sustainability filters can limit diversification. A balanced approach that considers both financial and sustainability criteria is often more effective.

Which investment strategy is most effective? The one that fits the investor and remains adaptable. In a dynamic market environment, no single approach can guarantee consistent success. Instead, a robust strategy is characterised by several principles: Diversification across multiple asset classes, disciplined risk management and alignment with personal objectives and constraints. Such a strategy typically combines different sources of return, is flexible enough to adjust to changing conditions and follows a structured process.

The essential components include a clearly defined risk profile, an appropriate investment horizon and a regular review of the portfolio allocation, with adjustments where necessary. Investors who follow these principles can benefit from both the structural advantages of passive building blocks and the flexibility of active management where it adds value. Ultimately, preparation matters more than prediction. A well-designed investment strategy provides that preparation.

The core principles of successful investing are well established: Diversification, disciplined risk management and a strategy aligned with the individual investor’s profile. In practice, there are several ways to implement these principles, each offering distinct characteristics. Investors who want to explore different approaches will find a broad range of solutions at Assenagon, from equities and Multi Asset to fixed income and specialised volatility strategies.

• Equity strategies focus on the long-term value creation of companies. The aim is not merely to select individual stocks, but to follow a systematic approach that incorporates factors such as company size (size), valuation (value) and sector allocation. In market phases where individual segments appear overvalued, a targeted allocation across equity styles can create a more balanced relationship between risk and return. Here you can find equity strategies.
• Multi asset strategies combine several asset classes, such as equities, bonds, commodities or alternative investments, within a single portfolio. The objective is to cushion fluctuations through diversification and generate more stable returns. The advantage lies in flexibility: Allocations can be adjusted actively depending on market conditions, allowing the portfolio to remain resilient in both growth periods and challenging market phases. Here you can find multi asset strategies.
• Fixed income strategies take advantage of the breadth of global bond markets, from government and corporate bonds to high-yield segments. Active management enables a selective approach to opportunities and to risks such as interest rate movements or issuer-specific events. Compared to index-oriented approaches, benchmark-independent management offers the benefit of focusing on attractive risk-return profiles rather than on the largest issuers. Here you can find fixed income strategies.
• Volatility strategies use market fluctuations as a source of return or protection. Depending on the approach, strategies may aim to earn volatility premia or act as a risk mitigator during periods of heightened uncertainty. Long volatility strategies tend to perform well when volatility rises, whereas premium-oriented approaches seek to generate stable income. Used appropriately, volatility strategies can act as a valuable diversifier that enhances the stability of traditional portfolios. Here you can find volatility strategies.