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The winners and losers of defensive equity strategies

Data lines 0Covid-19, the Ukraine-Russia crisis, inflation and rate hikes in the first half of 2022 have brought mixed results for defensive equity strategies, according to research by bfinance.

According to the investment consultancy’s 'Defensive Equities and Market Downturns' report, recent events contrast to previous years where defensive long-only equity strategies had shown an ability to protect investor capital.

The report states that the typical global equity income strategy had outperformed the MSCI ACWI by approximately 11% in the first half of 2022, which saved investors from ‘almost half of the index’s losses’.

Despite this, classic quality strategies have lost more than the market, and quality growth strategies have underperformed by more than 8%, according to the report. Low volatility managers, in particular, have also captured less than 70% of rising equity market movements over the past five years.

Bfinance’s report presented a five-part classification framework for defensive long-only equity strategies, which included low volatility, income, classic quality, quality value, and quality growth.

Robert Doyle, the firm’s senior director of public markets, said: “Capital preservation is very important for many institutional investors, and their equity portfolios will typically include one or more ‘defensive’ components to protect against market downturns. 

“However, active managers across the different types of defensive strategy—quality, low volatility and income—allocate capital with very different mindsets and, by extension, end up with portfolios that have very different underlying exposures.”

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