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Low volatility in high winds

One fund lived up to its low volatility name during the Q1 massive market swings sparked by the coronavirus pandemic.
Painting. A canvas, oil.

In the global equity category, out of 143 SFC-registered funds, including passives, 140 funds had double-digit negative returns in the extremely volatile first quarter, according to FE Fundinfo.

The best performer was the AB Low Volatility Total Return Equity Portfolio with a -0.58 return during the period.

The fund lived up to its name by delivering low volatility during wild swings in global markets: only 6.76 compared to double-digit volatility experienced by all peer funds and way better than the sector average of 43.24.

However, returns were less than its benchmark, the very steady ICE BofA 3-Month US Treasury Bill (0.46%).

Managed by Kent Hargis and Sammy Suzuki, the AB fund’s aim is long-term capital growth in stocks with fundamentally low volatility and less downside risks, according to the factsheet.

About half the portfolio in US equities, with information technology (20%) and financials (18%) the two largest sector bets.

 

AB Low Volatility Total Return Equity Portfolio vs benchmark, sector and key indexes

Source: FE Fundinfo. In US dollars, Q1 2020

 

Technically, the product that lost the least in Q1 was the ICBC Global Emerging Enterprises Fund. However, while classified as an international equity fund, it is a stretch to consider it a global strategy.

The portfolio is almost exclusively invested in China (97.4%). Jiumaojiu, the mainland-based restaurant chain, accounts for nearly 10% of the entire fund.

The proxy for China equities, the CSI 300 Index, was down only about 12% in the first quarter, far less than other major global indices.

Best performing global equity funds

Return Volatility
ICBC Global Emerging Enterprises -0.30% 36.50
AB Low Volatility Total Return Equity Portfolio -0.58% 6.76
HS China New Economy Index -9.29% 30.00
BMO Nasdaq 100 ETF -10.35% 43.62
Franklin Innovation -13.70% 44.07

Source: FE fundinfo. First quarter 2020, SFC-registered fund universe, in US dollars

 

Return Volatility
Sector HKM Equity -International -23.42 43.24

 

On the bottom

Small cap funds, which are volatile even during times of relative calm, and dividend funds, tended to bunch up near the bottom of the list.

The two Schroders dividend-focused funds each had around 65% exposure to the UK and Europe, markets that were hammered worse than others.

Worst performing global equity funds

Return Volatility
BlackRock GF Systematic Global SmallCap -33.99 53.12
Schroder ISF Global Equity Yield -34.41 45.22
Principal GIF Origin Global Smaller Companies -34.41 62.56
Schroder ISF Global Dividend Maximiser -34.76 53.12
Natixis Harris Associates Global Equity -38.25 59.06

Source: FE fundinfo. First quarter 2020, SFC-registered fund universe, in US dollars

 

The worst performing product in the category, the Natixis Harris Associates Global Equity Fund, has a value tilt, which in part accounts for the negative returns.

The fund is run by four managers who build a concentrated portfolio of around 40 stocks. They aim to find stocks priced below their estimated intrinsic value and hold the positions for the long-term, according to a March 2020 Morningstar report on the fund.

An overweight to developed Europe (38.5%) vs the benchmark MSCI AC World Index (20.4%) also did not help performance as European markets plunged lower than other key indexes (see chart below).

“It’s not unusual for holdings to cluster where there has been controversy, such as in tariff-wracked automakers Daimler and GM, in litigation-besieged German drug and agriculture firm Bayer, or in European financials,” the report said.

Morningstar, nonetheless, gives it a forward-looking analyst rating of Silver, citing the team’s “depth of expertise” and the long-term horizon. “It’s willing to look out of favor for prolonged periods to reap longer-term gains. Investors here need the same mindset.”

Natixis Harris Associates Global Equity Fund vs benchmark, sector and key indexes

Source: FE Fundinfo. In US dollars, Q1 2020

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