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
The $673 billion global investment manager has appointed a former Zenith sales head as it seeks to expand its reach in the Australian wealth management market.
Fund managers may be operating in a squeezed environment, but a salary guide shows they are willing to pay up for specialist talent to diversify their fund range.
Reach Alternative Investments has entered into a strategic partnership with Russell Investments to bolster its wholesale private markets offering for financial advisers and investors.
Boutique investment consulting and research house Genium Investment Partners has announced a senior appointment to drive further growth in its research ratings business.
