Posted inIndustry views

Robeco: Time for low volatility strategies

Volatile markets characterise 2016, and investors are warming to investment strategies that reduce risks, according to Tom Naaijkens, client portfolio manager for quant equities at Robeco.

The firm employs an active approach to low-volatility investing and this approach is known as the conservative equity strategy, which is applied to global markets and several regions, he said.

Interest in the field of low-volatility investing really started to grow when the global financial crisis unfolded around 2008, demonstrating how volatile markets can be.

“The advantage of our conservative strategy is that, in a declining market, the stocks involved typically fall less than other stocks. Once the market recovers, low-volatility stocks have less ground to make up to recover and start yielding positive returns again. Our strategy aims to reduce volatility by 20–30%,” he said.

There are two main phases in adopting the conservative strategy, according to Naaijkens.

“First, we rank all the eligible stocks in the universe based on their three-year volatility and their characteristics. Second, from this ranking that we obtain, we create a portfolio.”

Selecting low volatility stocks does not mean excluding other factors, such as momentum and value. But it is different from the fundamental approach, when portfolio managers’ attention would be drawn to specific sectors, he said.

While the conservative strategy does not have a strong focus on the fundamentals of specific sectors, the firm’s two conservative funds, which are available for sale in Asia, have higher weightings in certain sectors.

Sector weightings of the firm’s two funds

Robeco Global Conservative Equities  Robeco Emerging Markets Equities 
Consumer products 27.1  Financials 30.0
Financials 25.1 Telecom, Media, Technology 29.5 
Telecom, Media, Technology 18.8 Consumer Products 21.4
Utilities 11.4 Basic Materials 12.9
Industrials 8.9 Industrials 5.7
Healthcare 6.5 Healthcare 2.9
Basic Materials 1.1 Utilities 1.4
    Others 0.1

Source: FE; Funds’ factsheet 

The Robeco Conservative Equities Fund and the Robeco Emerging Conservative Equities Fund adopt the low-volatility approach. The two funds are managed by a team of portfolio managers, supported by client portfolio managers, including Naaijkens.

“Given the nature of stocks, some sectors are more eligible for a conservative strategy than others such as consumer staples and TMT [technology, media, technology]. Energy sectors could be another one.”


Volatility versus peers

Fund Fund sector 
Robeco Conservative Equities 9.95  International Equity  11.37 
Robeco Emerging Conservative Equities 14.91  Emerging Market Equity 14.90

Source: FE Analytics. Data is for the trailing three years. Fund sector is for funds available for sale in Hong Kong.


“Sector allocations are fully driven by bottom-up stock selection. Over the first few months of 2016, there have been no major changes [in the two funds] in the sector weightings. If any, they have been in the range of 1-2%. This is representative of the gradual changes in the characteristics of the portfolio.

On average stocks are held for four years.

Naaijkens said the conservative approach provides compounded returns for investors on a long-term basis.

“Over the long run, everything you don’t lose in a down market, you don’t need to make up in an up market. We phrase it as `winning by losing less’”.

Jan Sytze Mosselaar, portfolio manager quantitative equities at Robeco told Expert Investors in April that he prefers ranking stocks based on several factors over using a mean-variance optimisation process.


The Robeco Conservative Equities Fund has been outperforming its benchmark — the MSCI World Index — over the past 12 months, according to FE Analytics.



The Robeco Emerging Conservative Equities Fund does not have a benchmark, but it has been mostly in line with the MSCI Emerging Market Index over the past year, according to FE Analytics.



Part of the Mark Allen Group.