Risk vs Return
The benefits of investing in low-risk equities are sometimes overlooked.
Whilst conventional wisdom tells us that high-risk assets outperform their low-risk counterparts, in practice this isn’t always the case. We call this the low-volatility anomaly – which is the systematic mispricing of low-risk equities by financial markets – and it’s this anomaly that we seek to exploit when building Managed Volatility equity portfolios. Why take risk if it might not be rewarded? You could say our approach is to view the risk and return relationship through a different lens.
With the launch of our flagship Managed Volatility strategy in 2006, we were among the first firms to advance the theoretical idea of low-volatility equity strategies into a practical reality for our investors. Today, we manage over A$23 billion in these portfolios globally. These strategies are designed to provide market-like returns at significantly lower levels of market risk. Our pioneering research and lengthy track record suggest that this objective of reducing risk without giving up on return is achievable.
With a foundation built on over 30 years of experience in quantitative, risk-focused equity investing, Acadian’s broad and deeply experienced team of 90 investment professionals apply fundamental insights in a systematic manner to build equity portfolios that aim to hold an optimal combination of low-risk stocks with low levels of dependence on one another. By weighting a portfolio towards lower risk stocks, we believe this can substantially reduce the severity of future drawdowns from falling asset values. The benefits of a low-volatility approach increase when viewed from the perspective of compounded returns, which improve at lower levels of risk compared to the cap-weighted index.
By accessing the growth potential of equities and coupling this with an additional focus on the benefits of low-risk investments, Acadian takes a wide ranging perspective on risk. This offers investors the ability to allocate capital towards the traditionally higher returns of the equity asset class, whilst recognising their preference for reduced risk.
Perhaps it’s time for you to see low risk from a broader perspective.
Adviser use only. This is general information only and does not take into account any individual objectives, financial situation or needs. Investors should consider the relevant PDS before making an investment decision, available from advisers or colonialfirststate.com.au. The Colonial First State Australian Equities, Core Fund is distributed through and offered by Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State). Colonial First State is a subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 (‘the Bank’). The Bank and its subsidiaries do not guarantee the performance of Colonial First State’s products or the repayment of capital by Colonial First State.