Amundi Funds Equity Europe Conservative draws on ten years’ experience to deliver equity growth and yields, without the typical equity market drawdown.
The last decade has been a testing time for equity investors. The global financial meltdown, the eurozone, the taper tantrum, China’s slowing growth – each crisis has been marked by increased volatility and significant downside. Investors who think equity growth must always come with a lot of risk should think again, says Melchior Dechelette, head of risk efficient solutions at Amundi Asset Management.
He heads a team with a solid low-volatility track record. In 2007, it launched an innovative strategy aimed at investing in a diversified selection of European stocks that collectively experience less volatility in stressful conditions than the wider equity market.
Amundi Funds Equity Europe Conservative follows a similar strategy. The Ucits fund allows investors to participate in the potential upside of European equities, with probably less downside, aiming to deliver index-beating total returns over a five-year horizon.
It launched in 2009, investing in quality stocks from a mid- and large-cap universe.
“Unless they are deep value investors, every manager says they want high-quality stocks, but we really mean it. We set very specific conditions before any stock is considered,” says Dechelette.
The strategy’s results speak for themselves. Since the Greek crisis of 2010, annual maximum drawdowns for the MSCI Europe index have been in double digits. Equity Europe Conservative drawdown was less than the index’s fall in each case.
The strategy’s total calendar year returns were in line with or above the market in every year, bar one.
“Our low-volatility stocks are naturally defensive, but they can participate in rebounds, too. Our investors need not forsake returns for safety,” says Dechelette.
The pattern proves low volatility is compatible with growth, he thinks, as the strategy performs better than its benchmark in both strong and weak market cycles.
Equity Europe Conservative stocks tend to exhibit a higher profitability than their peers, plus a higher level of operating efficiency and a lower level of leverage. The portfolio’s managers look at metrics such as Return on Asset, EBIT (earnings before interest and payment) margins or Leverage ratio.
Stocks are also chosen for their diversification potential. The team tries to identify stocks that react as differently as possible from other stocks in the portfolio to market events, to ‘smooth the ride’, especially in turbulent markets. Overall, the portfolio of around 90 stocks has shown its ability to weather market drawdowns while fully participating in up markets: since its launch in April 2009, the annualised net performance has been 12.1% vs 10.6% for the MSCI Europe (as at April 30, 2016), with a lower level of volatility.
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