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Post by Fletchsmile on Jun 27, 2019 17:54:23 GMT 7
Has anyone actually held one of these long term to see how they fare in practice compared to theory? Particlarly in a down turn?
I hold only one low volatility fund. It's actually actively managed and hedged into SGD. Though it's underperformed the general market, it has met it's objectives in terms of return versus cost.
I borrowed in SGD at a cost of interest of 2%-3% p.a. to purchase it and was aiming for a return of 6%-7% p.a. or above in SGD terms (hence the hedged version). SGD because I wanted something less volatile over the long term relative to THB compared to say USD or GBP. So the "package" has met its objectives.
Returns are lower than they could have been, which isn't unexpected in a bull market, although we've not had a significant downturn yet. It's also irrelevant to an extent as I wouln't have borrowed further for something with normal risk at that time. So it was either borrow to invest in equities with lower risk or not at all.
I also see a few flaws in the theory of them too, eg:
- Volatility of different shares change over time - Not to mention different vols in different cycles - Volatility can also be adverselyimpacted adversely interest rates rising - Plus like the chase for yield, ETFs and otehr funds can distort people chasing lower volatilities and pushing prices up - Volatilities are usually based on backward looking data not forward looking
I originally looked for a lower cost ETF. But I couldn't find one in SGD that was hedged to match my borrowings. So I chose an active managed fund that came with higher charges.
It also struck me though that given that there are so many potential pitfalls and flaws, maybe some human judgement is needed to avoid too much of a formula based approached, particularly when things change. Though the main reason was just what was available in SGD hedged at the time rather than active or passive
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Post by Fletchsmile on Jun 27, 2019 17:59:11 GMT 7
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Post by rgs2001uk on Jun 27, 2019 20:56:54 GMT 7
What was it?
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Post by butterfly on Jun 28, 2019 0:04:38 GMT 7
looks like a total disaster scenario, maybe you should stop having investment ideas before it's too late  |
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AyG
Crazy Mango Extraordinaire
Posts: 5,871 
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Post by AyG on Jun 28, 2019 8:37:42 GMT 7
Have been looking into min. vol. ETFs recently. I'm beginning to think they don't have any particular advantage (for me, at least). If one compares min. vol ETFs with regular ETFs, there are a couple of different stories. This compares an S&P min. vol. fund against its vanilla equivalent since the launch of the min. vol. fund. Attachment DeletedLooking at the chart I couldn't tell which is which. In fact (A) is iShares Core S&P 500 UCITS ETF Acc USD, and (B) iShares Edge S&P 500 Minimum Volatility UCITS ETF USD. If we then turn to Emerging Markets, it's a different story: Attachment DeletedHere it's pretty obvious that one fund is less volatile than the other (and yes, it's the min. vol one). However, the performance since inception of the min. vol. fund is virtually identical. The two funds are (A) iShares Core MSCI EM IMI UCITS ETF USD, and (B) iShares Edge MSCI Emerging Markets Minimum Volatility UCITS ETF USD. There are a couple of things I like about min. vol funds: (1) They have a lower allocation to fashionable tech stocks such as Amazon and Alphabet, (and in the case of the US min. vol. fund above, zero allocation to Facebook). (2) They tend to be more heavily weighted to solid, traditional industries which pay a regular dividend. It is unfortunate that in a highly efficient market such as the US large cap market, where active management rarely succeeds, min. vol. doesn't provide an edge over "vanilla". In less efficient markets, such as emerging markets, it's clear that min. vol. does exactly what it says on the tin. It doesn't appear, though, to produce superior performance over the long term. This isn't enough to make the fund attractive to me, simply because this is an area in which active management can outperform, and I can have a bit more control over precisely which developing countries my money is invested in. |
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Post by Fletchsmile on Jun 28, 2019 10:16:08 GMT 7
Alliance Bernstein Low Volatility Equity Portfolio - AB SICAV I
Cost 1% initial fee. (Though someone could pay up to 5% if unaware  )
SGD Hedged version
Monthly dividend 3.43% p.a. covers monthly interest cost of c. 2.76% p.a
As mentioned, if looking purely as a stand alone investment I would have gone for a low cost ETF for a low vol fund instead, and actually likely wouldn't have gone for a low vol at all. AB can be a decent fund manager in some areas. This fund is nothing special and fees higher than usual on a fund. But that's buying funds for Singapore for you.
But I wanted: 1) SGD 2) FX Hedged 3) Monthly div or at least quarterly 4) Qualifies as having an LTV I can borrow against. No ETF met those requirements
So far, met/ exceeded objectives.
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Post by rgs2001uk on Jun 28, 2019 20:07:24 GMT 7
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Post by butterfly on Jun 28, 2019 21:49:04 GMT 7
Low volatility has its purpose, mostly for institutional clients and scared small miserable investors afraid of any kind of risks, thus they get shit returns for low volatility funds
the funny thing is that the low volatility is not stationary, so you get some nice big surprises when there is a big market crash, and you get dragged into it
that said, it can be useful in a well structured portfolio when you are putting a lot of assets in high returns high Beta securities,
simply not for everyone,
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