The value proposition of low volatility strategies is to provide a pure exposure to Equities while delivering a lower volatility than the index.
Thanks to their risk mitigation process and to their lower participation to market drawdowns, they are expected to outperform over the long-term.
However, risk is multi-dimensional. To construct a low volatility strategy, it is crucial to address a wide spectrum of risks and to look beyond volatility.
Indeed, the asset manager should overcome hidden risks behind low volatility strategies such as:
- Liquidity and capacity
- Interest rates sensitivity
- Potential gap between ex ante and ex poste measurement
- Macro risks
- Carbon footprint