Can lower volatility generate higher returns?
Although lower volatility investment strategies are often synonymous with lower returns, one of the least volatile funds over the last five years has outperformed the Australian equities sector and ASX 200, according to data.
According to FE Analytics, within the Australian Core Strategies universe in the Australian equities sector, the CFS Milliman Managed Risk Australian Share A had the least volatility at 8.79, over the last five years to 19 October, 2020.
This was followed by AXA Managed Investment Plan Australian Shares Portfolio (10.04), APSEC Atlantic Pacific Australian Equity (10.21), CFS FirstChoice Wholesale Lower Volatility Australian Share (10.36), IML Concentrated Australian Share (11.34) and AllianceBernstein (AB) Managed Volatility Equities (11.37).
In that same time period, the Australian equities sector had a volatility of 13.90, while the ASX 200 had a volatility of 15.41.
When it came to outperformance, only the AB fund had beaten both the ASX 200 (42.29%) and the Australian equities sector (38.53%) in returns with 57.71%, over the last five years to 30 September, 2020.
The AB fund’s top holdings were Coles, Sonic Healthcare, Transurban, Medibank, Telstra, Northern Star Resources, Woolworths, Resmed, CSL and Amcor. Consumer products and healthcare made up two fifths of the fund’s sector weightings.
Performance of the least-volatile Australian equity funds over the five years to 30 September 2020
In contrast, the best returns in the sector over that same period were Bennelong Concentrated Australian Equities which returned 99.61% with a volatility of 17.14, followed by Hyperion Australian Growth Companies which returned 95.9% with a volatility of 16.09, and Bennelong Australian Equities which returned 91.71% with a volatility of 16.8.
All three of these funds had a higher volatility than the Australian equities sector average and the ASX 200.
Out of the 25 least volatile funds in the sector, 11 of them managed to get better returns than the sector average, while seven additionally beat the ASX 200.
SGH Australia Plus returned 71.16% with a volatility of 13.52, Australian Ethical Australian Shares returned 69.33% with a volatility of 13.6, Katana Australian Equity returned 58.77% with a volatility of 13.47, the AB fund in fourth, and CI Brunswick which returned 55.08% with a volatility of 12.52.
Best-performing Australian equity funds out of the top 25 least volatile over five years to 30 September
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