Equities Low Volatility – strong performance across the globe


Strong performance compared to the global equity market

Since its inception in December 2013, our Equities Low Volatility strategy has generated a return of approximately 80% – an active return of more than 16 percentage points compared to the global equity market (MSCI AC World). We have emphasized that we expect the strategy to do well in periods of turbulence, and this has been evident in the last few months.

Key arguments for investing

There are four core arguments for investing in the strategy:

- We focus on equities with low price volatility and do not invest in the half of the global equity market with highest volatility. Several academic studies have documented that equities with low volatility realize higher returns than can be explained by classical theories. This means that risk and return do not walk hand in hand within equities.

- As an investor you should expect a better protection of wealth in down markets compared to the global equity market. Since its inception five years ago the strategy has on average declined by less than half the decline in the global equity market in down markets.

- We combine low volatility and high fundamental quality and thereby get the best of two worlds. The equity selection process focuses on high quality companies, meaning companies with a competitive advantage, high return on invested capital and low financial leverage.

- By investing in typically 90-100 global equities the strategy is highly diversified. As an investor you get exposure to a broad array of stable companies in different sectors and regions across the globe.


This last argument is clearly reflected in the holdings – the strategy is global by nature, and we are searching for companies with low volatility and high fundamental quality across all regions as illustrated by the cases below from the current portfolio:

France: Vinci – the strong niche player

Vinci (DG FP) is a French industrial company with the bulk of earnings from the operation of toll roads and airports. The equity has very low volatility as demand for the company's services is relatively stable as a consequence of the low cyclicality of the services. Vinci is an example of an industrial company that specializes in an interesting niche. In this way, the strategy achieves industry exposure without excessive sensitivity to the development in industrial production.

USA: UnitedHealth – The cash cow

Health insurance – for both the private and public segment – is UnitedHealth's (UNH US) core service. The insurances are beneficial for policy holders as employers can obtain relatively cheap policies by scale, and UnitedHealth utilizes the large volume of procurement to negotiate favorable prices on health care. The company has continuously expanded its market share and developed new products for the benefit of customers and users, which has resulted in increasing revenue and earnings. UnitedHealth has been part of the strategy since inception and is one of the holdings that has generated the biggest return for investors.

Canada: Telus – the national heavyweight

Canadian Telus (T CN) maintains its entire exposure in Canada, thereby keeping focus in a market where the company has economics of scale. The company is among the largest telecommunications companies in the domestic market, and provide a variety of communications products and services such as voice, data, Internet, and wireless services to businesses and consumers. The impressive stability in margins has been one of the reasons behind the rather low volatility in the share price in recent years.

Japan: Seven & i – convenience is the key to a steady flow of earnings

Seven & I (3382 JT) is a Japanese retailer that operates convenience stores and supermarkets. The group serve 62 million customers every day and has more than 60,000 stores, of which approximately 20,000 are located in Japan and more than 8,000 in the United States. The company has demonstrated great stability in revenue and earnings – a major factor behind this is the strategy of placing stores conveniently close to customers, thus reducing the sensitivity to competition and the discount trend.