We think the iShares Edge MSCI Australia Minimum Volatility ETF (ASX: MVOL) and Vanguard All-World ex US Shares Index ETF (ASX: VEU) ASX ETFs could be worthy of
Traditional multi-asset portfolios make allocations to cap-weighted equity indices to benefit from good long-term risk adjusted returns. But this also exposes the portfolio to the drawbacks of market volatility, including extreme events and tail risks, limiting the allocation to equities in a multi-asset portfolio.
Traditional defensive strategies offered to investors have five common drawbacks.
They deliver negative exposure to other rewarded factors since most competitors do not account for negative factor interactions.
They are very often concentrated portfolios since stocks are either weighted using inverse volatility or determined through optimisation under ad hoc constraints.
They are often exposed to macroeconomic risks since they tend to have persistent sector and/or regional exposures.
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Prepared by Scott Opsal
Investment styles generally have an inherent tendency to outperform in either bullish or bearish market environments. One cohort attracts buyers when the equity market is running higher and optimism prevails, while other styles draw interest when the market is weak, worry abounds, and safety is the desire of the day.
Such a behavioral bias is built into some factors by design, others accrue their directional bias as a secondary result of economic or cyclical forces.
There is no “official list” of bullish or bearish factors, so we must infer these tilts by examining style performance during periods when the market is exhibiting clear signs of bullish or bearish sentiment. The pandemic-induced swings during 2020 were exceptional in their speed and magnitude, providing excellent data points for analyzing style performance during extreme phases of market movements