Defensive Equity
Defensive Equity strategies are constructed to target specific Equity factors, with the goal of generating stable returns while also seeking to provide downside protection, by balancing exposures across dimensions of Equity risk.
With increasing investor interest in low-volatility equity strategies comes a need for greater scrutiny of different methodologies used to achieve low-volatility exposure.
Risk Parity Multi Asset
Diversified Factor Premia
Managed Futures
Differentiators
more robust ways of achieving low-volatility portfolios without this input sensitivity
Low-Volatility Investing
Finding that a traditional optimizer-based approach to building low-volatility portfolios has large sensitivities to the risk inputs used in the process
- In fact using the same portfolio construction methodology, but changing the risk inputs even slightly, can lead to large differences.
- The magnitude of this sensitivity should give investors pause; even across risk inputs in which differences are valid, variations persist and can be harmful to portfolio performance.
- show more robust ways of achieving low-volatility portfolios without this input sensitivity and suggest that investors should consider this lack of input sensitivity as a valuable characteristic in low-volatility investing.
The Risks Often Ignored in Low-Volatility Investing. Risk Analytics
Misuse of Tracking Error
Equity portfolio tracking error to a benchmark is a most ubiquitous restriction for active portfolios as prescribed by fiduciaries. The restriction is typically a tight range with minimum and maximum ex-ante extremes. The typical cap-weighted benchmark (i.e., S&P 500) has significant changes in diversification character over time.
This brings into question the sensibility of holding tracking error constant for a skilled active manager.