Low Volatility Investment Strategy
Finance theory suggests investors taking higher risk should be compensated with higher returns. We completely agree. This is one reason why we are so passionate about our Optimized Low Volatility Investment Strategy. We believe investors are not being adequately or efficiently rewarded for bearing equity market risk. The Optimized Low Volatility Strategy takes a different approach and investment view to maximize the risk/return trade-off. This knowledge, about investors not being compensated for bearing higher equity market risk, is not a recent trend or discovery. Academic research* has been publishing about it for decades. Our strategy is deeply rooted in and derived through academic research.
The strategy employs a multi-dimensional view to create a portfolio that by design seeks to provide more capital protection, consistent returns, and diversification with greater transparency over a full risk cycle. Some common characteristics of our strategy often include a high-dividend yield, a value orientation and a lower market cap or size compared to the market cap-weighted benchmarks. Due to our managed-risk approach to equity investing, we have experienced smaller drawdowns without sacrificing participation in up markets.
We use the following strategies:
* Markowitz, H.M. (March 1952). “Portfolio Selection”. The Journal of Finance 7 (1): 77-91. doi:10.2307/2975974. JSTOR 2975974.
* Markowitz, H.M. (1959). Portfolio Selection: Efficient Diversification of Investments. New York: John Wiley & Sons. (reprinted by Yale University Press, 1970, ISBN 978-0-300-01372-6;
2nd ed. Basil Blackwell, 1991, ISBN 978-1-55786-108-5) * Haugen and Heins (1975)
* Blitz and Van Vliet (2007)
* Baker, Bradley and Wurgler (2011)
* Clarke, De Silva, Thorley. December 15, 2006. Economics and Portfolio Strategy, Peter L. Bernstein, Inc. RSP database, 1968-2005.
* Black, Jensen, Scholes(1972) –stocks with high betas deliver low risk-adjusted returns
* Ang, Hodrick, Xing, Zhang (2006, 2009) -stocks with high idiosyncratic volatility have low returns
* Frazzini, Pedersen (2010) -low beta assets outperform high beta assets, across many asset classes
Our Low Volatility Strategy
As experts in the Low Volatility space, we offer a unique approach with our Low Volatility US equity strategy. Our focus starts and ends with managing risk. This systematic approach to investing in lower risk, lower volatility stocks gives us the opportunity to build portfolios that perform better, protect better, provide more diversification, and give investors a smoother ride.