07 June 2013
Focus on Minimum variance expertise
/// Why do you currently prefer the Minimum variance approach for equity management?
In an environment dominated by concerns about European growth, investors are taking a cautious approach to the increasingly erratic movements in equity markets that are making it more difficult to identify trends. The question remains: how can one set up lasting exposure to equity markets in this environment? In our opinion, earnings expectations are not sufficiently reliable or reactive in the current context to make relevant projections on equity markets. We believe it is more judicious to look at the risk dimension of equities, for instance by focusing on a reduction in their volatility so as to better hedge against possible market declines without sacrificing upside potential.
In such an environment, the Minimum variance approach can provide an appropriate solution.
It aims to make the most of opportunities in equity markets in the long term while reducing their fluctuations by selecting the least volatile stocks with the lowest mutual correlation.
By aiming to offset market declines, this approach seeks to increase the probability of outperforming equity markets over a stock market cycle.
/// In your opinion, what are the distinctive advantages offered by Seeyond’s Minimum variance approach?
Our main difference lies in the combination of a highly disciplined portfolio construction with active management over the long term. The fund managers adopt a long-term approach and constantly monitor a whole set of risk parameters (volatility, liquidity of stocks held in the portfolio, special situations, etc.).
Furthermore, in cases where significant exposure could prove risky (sector, country, etc.), the fund managers can step in to keep the portfolio sufficiently diversified. Since the inception of Seeyond Europe Min Variance in September 2010 and of Seeyond Global Min Variance in October 2011, the management team has achieved a remarkable performance in a wide variety of environments (bear, normal and bull markets, as well as during the equity market rally over the past year) by implementing portfolio management that has no other constraint than minimising absolute risk.
/// This strategy is well suited to market declines, but is it also relevant over a full cycle?
Yes, while our Minimum variance approach may not follow all market accelerations (both upwards and downwards), whether rebounds be across the board or thematic, it does seek to outperform the market as a whole over a full 3-year cycle while reducing risk significantly. That is why, whatever the volatility cycle (high or low), Seeyond’s Minimum variance expertise has performed well since its launch, at both a European and a global level.
/// Focus on Seeyond’s Minimum variance funds
Seeyond Europe Min Variance and Seeyond Global Min Variance(1) tap the variability and dispersion of European and global markets, focusing primarily on risk management. Against a backdrop of double-digit market increases in the last twelve months, our systematic risk approach (more particularly in the stock-picking phase) enabled both portfolios to make the
most of volatility revival phases. Our Minimum variance portfolios significantly outperformed their benchmark over the period(2).
As volatility is likely to continue trending in an intermediate regime, our management approach should continue to deliver outperformance over the long term while offering the lowest historical volatility in the market for this type of strategy.
Our Minimum variance funds thus offer investors the possibility of improving the Sharpe ratio of their equity and balanced portfolios, notably through the constant optimisation of our models and investment processes. Our Seeyond expertise also offers the possibility of providing real diversification compared to traditional fundamental management approaches.
Seeyond is the structured product and volatility management investment division of Natixis Asset Management. In order to offer investments that combine performance generation with risk reduction, Seeyond applies investment strategies that go beyond conventional active management.
With 32 employees, Seeyond has €15.3 billion in assets under management as of 31/03/2013.
(1) French mutual fund (FCP, Fonds Commun de Placement ). AMF classification “international equities”. I-C share in euro.
(2) Source: Natixis AM as at 30/04/2013. The Sharpe ratio measures a fund’s performance compared with a risk-free interest rate (Eonia capitalised in this instance), in relation to the risk taken (fund volatility). The higher the Sharpe ratio, the better the fund.
These funds are authorized for sale in France and possibly in other(s) country(ies) where their sale is not contrary to local legislation. Please refer to legal information of this material. See the full prospectus which is the only legally binding document.