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When it comes to reducing equity risk on a standalone basis, as well as total portfolio risk in a balanced portfolio, low volatility equities - i.e., the stocks of non-cyclical companies with stable earnings whose prices aren't volatile - can play a strategic role. Investing in low volatility stocks can be an effective way for investors to de-risk their portfolios while maintaining equity exposure, even in the presence of other correlated, low-risk assets.
By substituting low volatility equities for capitalization-weighted equities (i.e., broad-based stock indices weighted by market capitalization), in whole or in part, investors can potentially achieve comparable returns over a full investment cycle with a significant reduction in total portfolio risk – a phenomenon that tends to be persistent across market, volatility and correlation regimes.
This is the core argument of a new in-depth article by TD Asset Management Inc. called De-Risking Portfolios with Low Volatility Equities.
According to the article, one benefit of low vol equities is that they can potentially help when diversification fails. The traditional 60/40 portfolio - which includes a 60% allocation to stocks and a 40% allocation to bonds in an effort to balance the growth potential of stocks over the long run with the defensive properties of bonds - is built on the premise that there is a persistent negative correlation between bonds and equities. When equities go up, bonds go down, and vice versa.
But when that relationship breaks down, as it did in 2022, so do the purported benefits of diversification. The 2022 experience is a reminder that while diversifying across asset classes is necessary to reduce risk, it may not always be sufficient.
Another de-risking property of low vol equities is that they can help weather market crashes, the article notes. As a standalone strategy, low volatility equities have proved remarkably resilient, consistently lowering risk and downside participation across a variety of market regimes. Low volatility equities outperformed other equity styles during the worst crises of the last quarter century: the Asian financial crisis in 1998, the dot com crash of the early 2000s, the global financial crisis which began in 2007, the European debt crisis which started in 2009, the COVID-19 crash of 2020 and the 2022 economic slowdown. While low volatility was not the top performer in every one of these crises, it ranked among the best.
Yet another risk-reducing property of low volatility equities is that they free up room in investors' risk budget, allowing them to hold more equities or other return-seeking assets. The article demonstrates this by examining two classic 60/40 portfolios, one using capitalization-weighted equities and the other low volatility equities.
本文所含信息由道明资产管理有限公司提供，仅供参考。信息出自我们认为可靠的来源。图表仅供解说之用，并不反映任何投资的未来价值或未来表现。本信息并未提供财务、法律、税务或投资建议。具体的投资、税款或交易策略应根据每位投资者的目标和风险承受能力加以评估。
本文档中的部分陈述可能包含预测性的前瞻性陈述（“FLS”），其中包含“预计”、“预期”、“打算”、“认为”、“估计”和类似的前瞻性表述或其否定形式。前瞻性陈述基于当前对未来普遍的经济、政治、相关市场因素（例如利率和汇率、股票和资本市场）以及普遍经营环境的预计和预测，并假定不发生税法或其他法律或政府管制方面的任何变动或灾难事件。对于未来事件的预计和预测本身受无法预见的风险和不确定性的影响。此等预计和预测可能在未来并不准确。前瞻性陈述并非对未来表现的保证。实际发生的事件可能与前瞻性陈述明示或暗示的事件存在实质差异。包括上文所述各项因素在内的多个重要因素均可能造成这种背离。您不应在任何程度上依赖于前瞻性陈述。
本文档中的部分陈述可能包含预测性的前瞻性陈述（“FLS”），其中包含“预计”、“预期”、“打算”、“认为”、“估计”和类似的前瞻性表述或其否定形式。前瞻性陈述基于当前对未来普遍的经济、政治、相关市场因素（例如利率和汇率、股票和资本市场）以及普遍经营环境的预计和预测，并假定不发生税法或其他法律或政府管制方面的任何变动或灾难事件。对于未来事件的预计和预测本身受无法预见的风险和不确定性的影响。此等预计和预测可能在未来并不准确。前瞻性陈述并非对未来表现的保证。实际发生的事件可能与前瞻性陈述明示或暗示的事件存在实质差异。包括上文所述各项因素在内的多个重要因素均可能造成这种背离。您不应在任何程度上依赖于前瞻性陈述。
道明资产管理有限公司 (TD Asset Management Inc.) 是道明银行 (The Toronto-Dominion Bank) 的全资拥有附属机构。
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