Managing volatility through portfolios of high quality, low risk stocks

Robeco's Global Conservative Equities strategy was designed to capture one of the oldest anomalies in equity research: the low-risk anomaly. Academic research suggests that stocks with low beta have higher returns than explained by the Capital Asset Pricing Model. In addition it captures a volatility effect, as empirical research from Robeco also suggests that equity investors overpay for risky stocks.

Robeco has combined the beta and volatility effects into a low risk theme in an innovative stock selection model. This model is the sole performance driver of Robeco Conservative Equities. The strategy's objective is to deliver long-term equity returns at lower risk than that of a reference index. In terms of a risk-return profile, it may therefore be considered as a new category between equities and bonds. It aims to achieve a higher Sharpe ratio than equities in the long term.

The strategy is managed according to a transparent investment process. It combines the outcome of the stock selection model with a unique disciplined portfolio construction algorithm and a set of risk controls, including ‘human overview’ by a dedicated team of portfolio managers and quantitative researchers.

The hypothesis underlying the conservative equity approach is that stock markets are inefficient because of a behavioral bias on the part of investors. Conservative equity can benefit from risk-seeking behavior by other market participants brought about by their focus on outperformance as well as relative risk and return. In addition, research shows that stocks with characteristics such as low valuation and low risk tend to produce superior returns. Quantitative strategies can take advantage of all these factors.

Our competitive edge is based on the following elements:

• Innovative low-volatility investing based on award winning research
• A robust investment model
• An experienced team with a track record in low-risk equity investing