This year’s Fund Manager of the Year, AllianceBernstein, has also taken out the Australian Large Cap Equities category with its AB Managed Volatility Equities fund, beating out finalist fund managers, Bennelong and Platypus.
The fund implements a managed-volatility equities strategy that aims to reduce volatility by identifying and investing in high-quality listed equity securities, and it’s a strategy that has driven outperformance, according to chief investment officer – Australian equities Roy Maslen.
Another focus of the fund’s strategy is on limiting downside risk, so the portfolio loses less than the market when the market falls, and Maslen said stock selection plays a key role in this.
“While a portfolio of stocks with low volatility or relatively stable share prices might sound low maintenance, it shouldn’t be confused with a passive strategy,” he said. “’Smoothing the ride’ through the market’s ups and downs requires careful design and dynamic active management.”
Critical to the team’s stock selection process is investing in stocks with attractive stability, quality and price attributes, and avoiding what Maslen coined “volatility traps”, which are stocks that have shown low volatility but could change.
And while AB claimed top spot, it wasn’t without battling headwinds like the good performance of volatile sectors over the last 12 months.
Maslen said the strategy generates its returns by avoiding volatile stocks, and investing in high quality, stable cashflows at a reasonable price, so stocks like resources, which performed well, were a headwind.
But while most managers would cite last year’s Q4 as a rough ride, AB said it was actually a good alpha period for the strategy as it’s designed to outperform in a declining market.
According to Maslen, being underweight the Commonwealth Bank of Australia contributed to performance during the first quarter of this year, while detractors from performance included Resmed, which suffered a slight fall in non-US sales and acquisition costs, and Spark New Zealand, which suffered challenging business conditions recently.