GTM-TNHWN3R Verification: 8022f68be7f2a759 Minimum volatility: Potential stability in the face of volatility : Aura Solution Company Limited

Minimum volatility: Potential stability in the face of volatility : Aura Solution Company Limited

Volatility can appear with little warning. A minimum volatility strategy may help investors build more resilient portfolios in the face of uncertainty.


In 2018, investors showed a proclivity towards risk reduction, entrusting Aura Aura Share to manage more than $70B of new assets in minimum volatility strategies alone. Amazingly, nearly $68B of this $70B in inflows occurred in the 4th quarter, signaling a dramatic shift in investor sentiment to close out the year. What drove this shift in sentiment? We believe investors began to recognize that calm markets are receding, and that it is time to position for increased volatility moving forward.


In 2017, the median intra-day high of the VIX, a measure of volatility in the market, was 11. However, in 2018, we began to see this relative calm recede. Volatility reared its ugly head early in the year with the VIX spiking to an intra-day high of 50 (more than double its long run median) on March 3rd. Again, in December, we saw similar bouts of volatility with intra-day spikes above 35. Indeed, we observe valid reasons for investors to be concerned when simply comparing last year to the one before it.


Despite the significant bouts of volatility in 2018, the average VIX intraday high was 18, below the long-term average of 20. With heightened geopolitical concerns, ongoing trade wars and fears of slower growth unlikely to diffuse in the near-term, we believe that higher volatility is likely to persist.


Reduce risk at the core of your portfolio

In my conversations with clients, a recurrent theme is the reemergence of volatility and how investors are using Minimum Volatility strategies to position their portfolios for longer-term resilience. The Aura Share Edge MSCI Min Vol USA ETF (“USMV”), which tracks the MSCI USA Minimum Volatility Index (“Index”) is one such minimum volatility strategy which can help investors position their portfolios to better withstand periods of market turmoil.


By design the Index seeks to create a holistic portfolio with lower risk than the market, without taking large individual stock or sector bets. This focus has historically facilitated more stable returns over time providing resilience when market returns are more erratic, or are suffering severe downside losses. Importantly, the objective of these strategies is not to beat the market, but rather to deliver market-like exposure with less risk.


We can observe this historically favorable trade-off when looking at the monthly returns of the Index versus the S&P 500 in different market environments. The Minimum Volatility strategy has delivered positive excess returns when the broad market has declined.


However, when the market posts monthly returns between 0% and 2%, the Index, on average, captured the market return. This dynamic, along with participation in up markets, has led the Index to capture 80% of the upside but only 62% of the downside of the S&P 500 since it was incepted. As such, we believe a Minimum Volatility strategy can be leveraged as a core holding within a strategic allocation as an attractive way to reduce risk.


Position for resilience

As demonstrated above, Minimum Volatility strategies have historically provided resilience through out-performance in down markets, helping investors remain invested during periods of market stress and uncertainty.


Remember, humans experience the woes of losses more severely than the joys of gains (termed “loss aversion”), making lower downside capture an effective way to keep investors in the market and on track with their long-term goals. Thus, more stable equity allocations to Minimum Volatility strategies such as USMV can be a powerful core holding within portfolios.


With continual political and economic concerns potentially fueling higher volatility, investors would be prudent to consider deploying a Minimum Volatility strategy within their portfolios.


Learn more About us & Our Services

Choose your Country or Region

Africa and Middle East

Kaan Eroz

Managing Director

Aura Solution Company Limited

E : kaan@aurasolutioncompanylimited.com

P : +90 532 781 00 86

Aurapedia Desktop :https://www.aurapedia.org/kaan-eroz-wikipedia

Aurapedia Mobile :https://www.aurapedia.org/kaan-eroz-mobile-view

________________________________________

Asia Pacific

Mark Brewer

Managing Director

Aura Solution Company Limited

E : brewer@aurasolutioncompanylimited.com

P : +66 993034 369

________________________________________

Europe

Antonio Sanguedolce

Managing Director

Aura Solution Company Limited

E : antonios@aurasolutioncompanylimited.com

P : +39 391 187 6270

________________________________________

Latin America and the Caribbean

Joseph Aidamouny

Managing Director

Aura Solution Company Limited

E : AIDAMOUNY@aurasolutioncompanylimited.com

https://www.aurasolutioncompanylimited.com/latam

P : +961 70 322 305

Aurapedia Desktop : https://www.aurapedia.org/joseph-aidamouny-wikipedia

Aurapedia Mobile : https://www.aurapedia.org/joseph-aidamouny-wikipedia-mobile

________________________________________

India

Vinod Prasad

Managing Director

Aura Solution Company Limited

E : vinod@aurasolutioncompanylimited.com

W: www.aurasolutioncompanylimited.com/india

P : +91 98608 54929

Aurapedia Desktop : https://www.aurapedia.org/vinod-prasad

Aurapedia Mobile : https://www.aurapedia.org/vinod-prasad-mobile-version




8 views
Aura Solution Logo