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.
"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".
Recommended for you
AUSIEX has announced it will acquire FIIG, a specialist fixed income provider with $4.5 billion in funds under advice.
Platinum Asset Management has announced it is in discussions with a global alternatives fund manager regarding a possible merger to create an $18 billion firm.
JP Morgan Asset Management has appointed an ETF specialist from Vanguard as it seeks to expand its ETF range.
The alternative asset manager has expanded its Singapore office with a head of Asian distribution, representing a “critical step” for the Asian business, where it is seeking to launch new offerings.
