Entrepreneurial Risk. Equity investments represent a direct participation in the economic success or failure of a company. In the worst-case scenario (i.e. insolvency and the compulsory winding-up of the company), this may result in the total loss of the amounts invested. Key Personnel Risk. The investment success is often driven by the suitability and the success of the persons taking actions. However, the composition of the fund management may change. New key personnel and decision makers may be less successful than their predecessors. Portfolio Turnover. Sub-Funds may have relatively high turnover at times. Although the Management Company intends to limit turnover, the Management Company has the discretion to buy or sell investments at a rate that may result in high transaction costs. Valuation Risk. Sub-Funds carry certain risks in relation to the valuation and/or settlement of their assets such as:
Entrepreneurial Risk. Since the investors participate in the economic development of the company after purchasing the stock, they are basically entrepreneurs and thus have access to the rewards related to that enterprise; however, they also bear the corresponding risks. The entrepreneurial risk also entails the risk that the company’s business activities do not result in any success. In extreme cases, this may also lead to the company’s insolvency. In that case, your investment may result in a total loss. This applies even more since stockholders in such an insolvency scenario do not participate in any existing assets until all other creditors’ claims have been settled. Stock prices are subject to fluctuation, in some cases, these fluctuations can be rather extreme. They typically depend on the supply and demand situation. They are marked by general economic expectations and the company’s special circumstances. In the long run, price fluctuations are dependent on a company’s earnings position, which in turn is affected by the macroeconomic trends and the underlying political conditions. From a medium-perspective, effects from economic, currency, and monetary policies overlap. On a short-term basis, current events limited in time such as disagreements or legal disputes, international crises, commodity prices, or many other parameters affect price computations and market sentiment. In principle, one can distinguish between the general market risk inherent in a stock and the company-specific risk. The general market risk is the risk of changes in prices resulting from general trends in the stock market which are not directly correlated to the economic position of the individual companies. Hence, based on the market as whole, the price of a stock at the stock exchange decreased despite the fact that the current economic situation of the company has not changed. Such general market risks can overlap positive company-specific developments, relativize, mitigate, or completely eliminate effects. It cannot be predicted how long such effects prevail. Company-specific risks means risks directly or indirectly related to the company itself. This means in particular the company’s position in the market environment, decisions made by the management, and similar circumstances directly related to the company. The underlying general conditions include in particular the inflation rate, the prime rates, underlying tax and legal conditions, and the general market psychology. It can be observed freq...
