Low volatility funds have become quite popular of late, as many look for ways to protect their nest eggs from the market.
Despite less than three years of track record, this RBC offering has shown a lot of promise. Managed by a team headed up by Bill Tilford, the investment process is very quant focused that looks to minimize the fluctuations of the portfolio while maximizing risk adjusted returns.
The process starts by rating and ranking each stock on a number of different fundamental criteria that are both forward and backward looking. The team then reviews a number of stability measures, which are also scored.
The team then generates a risk forecast for each stock, which is then used as an input in the manager’s portfolio optimization model. The portfolio is optimized twice – once using a more traditional approach and the second time using more predictive factors. The final step is a fundamental review completed by the team.
The result is a large cap focused portfolio, holding nearly 200 names. Given the emphasis on low volatility, it is not surprising to see it significantly overweight in defensive sectors like utilities, consumer staples and telecom. While the Canadian version is quite richly valued, this global offering is more fairly valued. Still, I believe it will still be a tough task for the fund to sustain its level of outperformance.
Over the past year, the MSCI World Index was down 3.2% in Canadian dollar terms, while this fund posted a rather respectable 5.1% gain. Year to date, the market is off by 8.8% and this fund has held up well, dropping 1.4%
As with its Canadian counterpart, I think it is worth considering if you are looking for conservative global exposure, and are comfortable with underperforming in a rising market.