Institutional investors, particularly pension funds, have shown increasing interest in low volatility strategies, given their dual priorities of smoothing returns and mitigating drawdowns. However, such strategies failed to deliver as designed when turbulence returned to the markets in 2020, continuing their disappointing trend in recent years, a period marked by several bouts of volatility.
We believe investors would benefit from exploring complementary fundamentally-based strategies that maintain a similar, but broader, three-pronged value proposition: lower than market volatility, downside protection and, critically, excess returns over a full market cycle. Ninety One's Global Franchise strategy has historically achieved this return pattern by investing in a focused portfolio of resilient, best-of-breed companies that maintain a combination of both high returns and low leverage.
Diversification is also a critical consideration. Fundamentally-oriented Global Franchise largely focuses on a different set of stock selection criteria, lowering its correlation to quantitative strategies and increasing overall portfolio diversification.
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All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.