Should You be Worried about a Low Volatility Bubble?

Data analysis has suggested low volatility strategies are less prone to bubbles than traditional market cap-weighted indices.

(December 18, 2013) — Investors in low volatility strategies are unlikely to suffer from a bubble effect due to the low volume of cash invested, according to research from Ossiam.

The provider of smart beta exchange-traded funds and affiliate of Natixis Global Asset Management investigated whether the recent popularity of low volatility strategies could result in a bubble effect, caused by the flow pressure on the prices of companies typically selected by this approach.

Ossiam assessed four measures of “expensiveness” which would be considered a hallmark of an approaching bubble—fund flows, fundamental valuation, relative performance, and whether correlations with other strategies increase.

For each of the criteria, Ossiam’s data suggested that there was no evidence of an abnormal—or bubble-like—behaviour.

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“Despite the amount of recent interest in this investment style, the amount invested in this sector is small compared to the market capitalisation of the low risk stocks,” Ossiam said.

“These strategies do not exhibit bubble-like outperformance with respect to the market… the low-risk stock appear somewhat expensive, but the historical analysis reveals that this expensiveness was not generated only recently, but is rather a manifestation of a premium from which less indebted and more profitable companies benefit.”

The research did highlight an increase in correlation however. An earlier experiment by Deutsche Bank’s quantitative team in May 2013 had looked at the crowdedness of low volatility strategies, and found that when investors traded a group of stocks as a basket, i.e. a basket of low volatility equities, they showed higher correlations than a market average, particularly during downturns.

Ossiam’s investigation took the S&P500 universe and built 10 portfolios corresponding to volatility deciles, and measured the average correlations within each during market downturns.

The data found the lowest volatility buckets consistently showed the highest correlations among the volatility buckets. However, Ossiam wasn’t able to conclude that the correlation was driven by money flows into the bucket as it could also be due to the low volatility buckets’ concentration in defensive stocks, such as defence, healthcare, and utilities.

Home > News > Manager Selection > Year-End Job Moves Pile Up at Asset Managers

Manager Selection December 18, 2013

Year-End Job Moves Pile Up at Asset Managers

SSgA, OppenheimerFunds, and AMP Capital, plus others, have lost and gained top employees in the dwindling days of 2013.

(December 18, 2013) – The new year will bring new jobs for many in the asset management and servicing industry.

State Street Global Advisors (SSgA) has dropped another hint that it’s pushing hard to be the default defined contribution firm of the future by hiring Alliance Bernstein's head of product and partner strategy Mark Fortier.

Fortier will serve as managing director and head of global defined contribution research and product development at SSgA. The firm has previously had a significant focus on viable retirement income products, but hiring Fortier suggests it is also making a serious investment in project.

Elsewhere, infrastructure specialist AMP Capital has lost its CIO David Kiddie, but will have two new appointees joining its leadership January 1. Kiddie started in 2009, and has decided to return to the UK to rejoin his family, according to AMP.

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In addition, Sean Henaghan--who has been with the Australia-based firm since 2006--will become head of its multi-asset group. He is being promoted from head of the multi-manager and investment solutions team. Fixed-income chief Mark Beardow has also been given the nod to take over all of AMP’s specialist investment teams.

A new CIO had not been announced by AMP at the time of writing.

OppenheimerFunds, in contrast, does have a new chief investment officer. Current CIO Arthur Steinmetz will move into the chief executive slot, while CIO of fixed income Krishna Memani has earned Steinmetz’s prior position. The departing chief executive William Glavin will remain on as chairman.

For one asset management firm, moves haven’t been in the leadership team, but rather the entire company. Legal & General Investment Management America, which specializes in liability-driven investing, has grown out of its offices and will be moving to a new space in downtown Chicago.

“We have wanted to move to the downtown area for some time, but wanted to make sure that we found the right space before moving,” said CEO Mike Cranston. “As the company continued to expand and our client roster grew, it became evident that we needed an office that aligned with the next phase of our US plan.”

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