25 February 2013
Volatility: the 5th element
Seeyond, the volatility management structured product and investment division of Natixis Asset Management, presents its first research publication: "Integrating a new risk factor into equity investment ".
Challenging conventional financial theories
Equity investors have been cognizant for decades of a number of risk factors that contribute towards explaining the behaviour of equity markets.
Most investors still believe that the performance of an equity portfolio is determined by four risk factors:
- Capitalization Size,
- and Momentum.
The recent past has cast doubts upon basic finance principles and drawn out into the light an additional factor that investors should integrate into their analysis. The volatility factor runs counter to traditional portfolio theory which stipulates that an investor should be rewarded in proportion with the risk taken.
Based on this observation, Seeyond’s quantitative research team has produced its first research paper to show the interest of "Integrating a new risk factor into equity investment".
Equities and volatility: a key equation
Hamza Bahaji, PhD, head of quantitative research at Seeyond, explains:
"Recent developments(1) have helped to identify a new determinant of stock market performance, namely the volatility factor.
The incorporation of this fifth factor increases the explanatory power of stock market returns, especially in an uncertain market".
Investors now have to take into account an additional factor in their analyses: the Volatility factor, which goes directly against the financial theory according to which an investor is rewarded in proportion for the risk incurred.
The Minimum Variance expertise to find a balance between performance and risk/volatility
"Our study looks to use the volatility factor as a building block to construct more resilient equity portfolios while also providing insight around the durability of a financial anomaly – namely that low volatility stocks perform as well as high volatility stocks while by definition taking on far lesser risk.”
For instance, this specificity is turned to advantage by Seeyond’s Minimum Variance approach in the funds Seeyond Europe Min Variance and Seeyond Global Min Variance, which both have among the best risk/reward ratios in their respective category(2).
Emmanuel Bourdeix, co-CIO of Natixis AM and Head of Seeyond investment division, concludes: "Seeyond’s strength undeniably lies in our specialists’ ability to constantly challenge the postulates of conventional financial theory as well as our own models, backed by a specific quantitative research platform that provides support for day-to-day investment management.”
For further information and for receive the research paper, please contact Sam Richmond-Brown, product specialist of Seeyond: firstname.lastname@example.org
/// MORE INFO
VIDEO - "Integrating a new risk factor into equity investment"
with Sam Richmond-Brown, product specialist of Seeyond
& Hamza Bahaji, Head of Quantitative Research of SeeyondND OUT MORE:
(1) See Ang, Hodrick, Xing and Zhang (2006).
(2) Source: Bloomberg. Data as of 31/01/2013. Performance of Seeyond Europe Min Variance over 1 year = +14.10% vs -1,04 % in its category « Europe-Euro ». Performance of Seeyond Global Min Variance over 1 year = + 8.27% vs 1.87% in its category « World ». The figures mentioned refer to previous years. The Fund’s past performance or reference to any rankings or awards received by it or its manager cannot be interpreted as indicating the future performance of the funds or of their managers.
This information is strictly intended for professional clients.
The risks and relative fees involved with this investment are detailed in the fund’s simplified prospectus/key investor document. There are no guarantees when it comes to the capital invested or to performance. Please read the prospectus/key investor information document carefully before investing. The simplified prospectus/ key investor information document and periodic documents are available from Natixis Asset Management on request (Natixis Asset Management - Clients Servicing – 21, Quai d’Austerlitz – 75634 Paris cedex 13) and on this website.