Every capital market investment carries both opportunities and risks. These risk warnings from the Allianz Group aim to help you understand the potential risks of financial investments and related services. The value of ETFs, ETNs, and index funds offered may fluctuate on the market. Investment prices can rise or fall. In the worst-case scenario, a total loss of the invested amount may occur. Additional detailed information can be found in the provided documentation, particularly in the fund prospectuses and base prospectuses (including supplements) of the issuers.
The value of a capital investment in securities and other financial instruments is significantly affected by general capital market risks. These risks can impact the performance of any investment individually or in combination.
Economies are subject to cyclical fluctuations, with phases of growth and recession. These cycles can last for years or even decades and can influence the performance of investments. In times of downturn, the value of capital investments may be negatively impacted. If investors misjudge the economic cycle, they may invest or hold investments at an inopportune time, leading to losses.
Inflation risk refers to the danger that inflation will reduce real asset values and returns. If inflation exceeds the return on an investment, it results in a loss of purchasing power, known as negative real interest.
When a debtor is located abroad, payments may be delayed or defaulted despite the debtor’s willingness and ability to pay, particularly if the foreign country imposes capital controls or currency restrictions. Political or economic instability may cause such country or transfer risk, leading to potential losses for the investor.
Investments in foreign currencies may result in real returns differing from nominal returns. Unfavorable exchange rate movements may result in financial losses for the investor. If the foreign currency depreciates relative to the investor’s home currency, a loss in value may occur upon redemption.
Market values of investments (e.g., stock prices) fluctuate over time. Volatility measures the extent of these fluctuations. The higher the volatility, the greater the price swings, increasing the risk of loss.
There may be a delay between placing an order to buy/sell an investment and its execution. This depends on the investment's liquidity. In the worst case, the order may not be executed at all.
Liquid investments usually have sufficient buyers and sellers for smooth trading, allowing timely execution at a fair market price. Illiquid investments or markets with low liquidity may not guarantee timely order execution.
If investments are financed through loans or securities are pledged to obtain additional investment funds, this creates leverage, increasing risk for the investor. If the investment value declines, the investor may need to repay the loan using additional funds and could be forced to sell their investment. Lenders may also require additional collateral or call in the loan in the event of declining values.
Returns on investments are generally subject to taxation, reducing the investor’s net return. Changes in tax legislation may increase tax burdens. Foreign investments may be subject to double taxation. Tax policies can affect overall capital market performance positively or negatively.
Costs reduce the net return of investments. Banks, financial service providers, and fund managers charge fees that diminish investment returns. Investors should carefully review all costs related to an investment.
Investing in fund units may involve front-end loads and internal management fees. The amount of the front-end load and ongoing fees may vary. Over longer holding periods, these ongoing costs can accumulate. However, for short holding periods, purchasing a fund with a high front-end load may be more expensive. These costs may not apply or be significantly lower if the underlying securities are purchased directly.
Declines in the prices of the securities held within the fund are reflected in the unit price of the fund.
The more specialized a fund is (e.g., focused on a specific region, industry, or currency), the more pronounced the risk and return profile becomes. While this can lead to higher potential returns, it also increases the risk and volatility.
Performance statistics are intended to compare fund management success, but they are often misleading or incomplete. For example, front-end loads are often excluded from performance data. Past performance is not a reliable indicator for future investment decisions.
Under certain conditions, fund assets may be transferred to another fund or the management company may terminate its management. This may result in the continuation of the investment under less favorable conditions and a potential loss of profits for the investor.
Exchange Traded Funds (ETFs) and index funds are open-ended investment vehicles. Funds deposited by investors are managed by an asset management company (AMC) based on a defined investment strategy. By purchasing shares, investors acquire fractional ownership of the fund’s assets. In open-ended funds, the number of units is not fixed; the AMC can issue new units or redeem existing ones at any time.
The price of an open-ended investment fund is based on its net asset value (NAV), which is the total value of all fund assets divided by the number of outstanding shares.
Index funds aim to replicate the performance of a specific index. The offered index funds are not exchange-traded, whereas ETFs are a type of index fund that is traded on exchanges. ETFs provide additional liquidity through designated market makers who quote buy and sell prices during trading hours.
ETFs and index funds are passively managed and replicate the underlying index, exposing them to the same market fluctuations. The risk of fluctuation derives from the securities within the index, typically stocks and/or bonds.
If the ETF or index fund is not denominated in the currency of the underlying index, currency fluctuations can negatively affect performance.
There may be deviations between the performance of the index and the ETF or index fund. This may be due to transaction costs, dividend payment timing, or tax treatment.
In synthetic ETFs, there is a risk that the swap counterparty may default on its obligations, potentially resulting in investor losses.
Transactions executed outside of exchange trading hours may result in deviations from the value of the underlying index. This can occur when the ETF and its underlying assets are traded on different exchanges with varying hours.
ETFs and index funds in the offered portfolios replicate indices made up of bonds or stocks. The following risks associated with these instruments indirectly affect the ETF/index fund value:
Debt securities are issued by entities whose creditworthiness may decline. A downgrade or default can lead to a loss in the investment. A high rating does not guarantee creditworthiness, as ratings are subjective assessments.
Interest Rate Risk / Price Risk:Bond prices are influenced by interest rate changes, which are affected by fiscal policy, inflation, and global economic trends. Longer durations and lower yields increase sensitivity to rate changes, potentially resulting in losses when rates rise.
Stockholders are equity investors and share in the company’s performance. Poor business results or insolvency can lead to full capital loss.
Price Volatility Risk:Stock prices are unpredictable and influenced by both market sentiment and company performance, along with macroeconomic events and policy decisions.
Dividend Risk:Dividends may be reduced or canceled if the company reports low or negative earnings. Past dividends are not reliable indicators of future payments.
Market Psychology:Investor sentiment can drive irrational behavior, leading to exaggerated market movements without fundamental justification.
Between the time an order is placed and its execution on the stock exchange, the relevant market price may change unfavorably. Although orders are generally executed quickly and reliably on the exchange, delays cannot be entirely ruled out.
In exceptional market conditions, the exchange may temporarily suspend price determination to prevent extreme price fluctuations. In such cases, buy or sell orders placed on domestic exchanges are not executed and expire. Foreign exchanges follow their own rules and practices.
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