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
Clime Investment Management has faced shareholder backlash around “unsatisfactory” financial results and is enacting cost reductions to return the business to profitability by Q1 2025.
Amid a growing appetite for alternatives, investment executives have shared questions advisers should consider when selecting a private markets product compared to their listed counterparts.
Chief executive Maria Lykouras is set to exit JBWere as the bank confirms it is “evolving” its operations for high-net-worth clients.
Bennelong Funds Management chief executive John Burke has told Money Management that the firm is seeking to invest in boutiques in two specific asset classes as it identifies gaps in its product range.
