Defensive Equity Strategies for Volatile Markets

Multiple Choice: Pick one from many! 

The U.S. market recently posted its largest one day rally since 1933, and few commentators believe that market volatility is likely to subside anytime soon. Increased levels of intra-day volatility may provide favourable circumstances for short-term trading, but they also offer opportunities for longer-term portfolio realignment. One possible solution might be to reduce equity portfolio volatility via the use of low volatility or defensive equity strategies and overlays.

Though there are a range of potential solutions, this collection of papers highlights several different approaches to defensive equity portfolio management, including the use of alternative risk premia, minimum variance, adaptive volatility and target factor exposure. Other approaches seek to reduce volatility via country allocations.

Designing More Defensive Solutions: A new solution that really is low volatility (Scientific Beta, 2020)

Scientific Beta offers a new defensive solution for portfolio management which combines Low Volatility with a Maximum Volatility Protection risk control option. This solution appears to provide superior long term risk-adjusted performance with reduced fixed income risks. They also provide a webinar to accompany the paper.

An Institutional Investor Guide to Defensive Equity Investing (Intech, 2020)

For compliance reasons, this paper is only accessible in certain geographies

Intech offers its eBook, which delves deeply into the subject of defensive equity investing. It poses searching questions about the investment case for using this particular investment approach, why it appears to work, and what outcomes one might expect.

A Defensive Allocation in Broad Portfolios: How much is enough? (PIMCO, 2020)

PIMCO suggests defensive alternative risk premia strategies as risk mitigation tools for equity-heavy, mixed-asset portfolios.

Managing Market Volatility: Protecting institutional portfolios (FTSE Russell, 2019)

FTSE Russell explores a variety of techniques that might be used to protect portfolios from market volatility.

A Low Volatility High Dividend Approach for the China A-Share Market (S&P Dow Jones Indices, 2020)

S&P Dow Jones Indices suggest that the S&P China A-Share LargeCap Low Volatility High Dividend 50 Index offers exposure to two risk factors that have historically, delivered risk premium in the volatile China-A share market.

Coping with Coronavirus-Induced Market Volatility: A multi-asset update (Franklin Templeton, Mar 2020)

For compliance reasons, this paper is only accessible in the EMEA region

Ed Perks and Gene Podkaminer of the Franklin Templeton Multi-Asset Solutions team explain their approach and which countries appear more insulated to growth stocks.

The Valuation of Low Volatility (S&P Dow Jones Indices, 2020)

S&P Dow Jones Indices investigates whether low volatility stocks were overbought and overvalued.

Markets - and Factor Returns - Run Wild: Time to check your bets (Qontigo blog, 2020)

Qontigo suggests that given extreme volatility in the markets, investors need to keep a close eye on factor returns, some of which may not deliver what was expected!

Video: S&P Dividend Aristocrats + Risk Control = Participation and Protection (S&P Dow Jones Indices, 2020)

S&P Dow Jones Indices examines how combining risk control with the S&P 500 Dividend Aristocrats can address volatility and enhance return.

Implementation considerations for defensive strategies (FTSE Russell, 2019)

In this paper, FTSE Russell takes an in-depth look at three approaches to defensive investment strategies. Low Volatility Factor (LVF), Minimum Variance (Min Var) and Equal Risk Contribution (ERC) are similar in their use of risk measures but have distinct objectives, portfolio construction methodologies, exposures and investment outcomes.

Embracing Downside Risk (AQR Capital Management, 2017)

AQR Capital Management argues that based on equity index option pricing, most of the empirical equity risk premium relates to compensation for bearing downside risk; therefore downside risk is something to be embraced.

The complete downside protection toolkit (Fidelity International, 2018)

For compliance reasons, this paper is only accessible in certain geographies

Fidelity International highlights a range of portfolio protection tools, examines the pros and cons of each and suggests when they might best be deployed.