Call to maintain stability in equities investing

Investors are once again beginning to move away from safety stocks but adding a "stability bucket" to a portfolio can help protect against downside risk, according to Chris Marx, portfolio manager of AllianceBernstein's low volatility equity services.

So-called low-volatility investing is a long-established strategy but is often misconstrued by investors as merely buying a safe, high yielding stock, Marx said.

History has shown, he said, that taking on lower-risk securities by buying companies with more predictable sets of returns performs better than the equities markets over full market cycles.

Related News: Term deposits preferred over super

"Valuations matter and high quality companies that produce good returns tend to do well in rising markets," he said.

By complementing the down-side protection from lower risk companies with an exposure towards high quality stocks, investors could participate in rising markets as well and "do a lot better on both sides of the spectrum", according to Marx.

In relation to the diversification benefits, Marx said low volatility equities tend to perform well at different points in time compared with other traditional equities strategies.

For instance, a fund manager will usually buy an undervalued stock because they believe they will eventually be rewarded with a fairer valuation, he said.

"Those companies tend to do well at different times than strategies like this which feature companies whose earnings are more predictable," he said.

He said having a low volatility equities allocation was a good diversifier for other risk-based strategies as it offered a way to get exposure to long-term equity market returns with less risk, "therefore freeing up your allocation to higher risk strategies".

Related Content

Retiree-focused fund added to BT wraps

BT has added Legg Mason's Martin Currie Equity Income Trust to its BT Wrap and BT SuperWrap, the global asset manager revealed last week.The fund, des...more

FIRB breaches highlight advisers’ high standards

Assumptions regarding the roles of real estate agents and lawyers in the sale of residential property to foreign investors needs to be examined, Conne...more

Industry funds argue LIF is 'relatively feeble'

Industry superannuation funds have told a Senate Committee that the Government's legislation underpinning the Life Insurance Framework is 'relatively ...more



Add new comment