equity strategist - minimum variance solutions
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Equity Strategist, Minimum Variance SolutionsTRANSCRIPT
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A...E Ssdolnotel: 078 922 08 77
e-mail: [email protected]
website: www.qmsadv.com
Equity Solutions – Euro Stoxx 50 Index October 2012
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A...E Ssdolno | tel: +41 (0)78 922 08 77 | e-mail: [email protected] | website: www.qmsadv.com LTdb -
Ø Delivering the best risk/return trade-of: Ø Since the 1960s, the capital asset pricing model (CAPM) brought an elegant solution
to the optimization problem, arguing that the most efficient portfolio is necessarily a
broad market portfolio weighted by market capitalization of stocks.
Ø This corresponds to performing mean-variance optimization with market implied
forecasts of risk and returns.
Ø Market-capitalization weighted portfolioØ The only portfolio that is truly "passive" in its objective on the mean-variance
frontier is the Minimum Variance Portfolio (MVP).
Ø MVP is an optimal portfolio that is constructed by minimizing portfolio variance. The
minimum variance construction does not use stocks' expected returns as inputs, and
relies only on the covariance matrix.
Ø Risk-efficient passive equity allocation:Ø There is a growing body of evidence of outsized ex-post risk-adjusted performance
of minimum variance portfolios.
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Low Volatility StrategyRisk Efficiency in Passive Investing
A...E Ssdolno | tel: +41 (0)78 922 08 77 | e-mail: [email protected] | website: www.qmsadv.com LTdb .
Attractive historical statistical features
Ø The low volatility strategy offers attractive statistical features whether considered on a
standalone or total portfolio basis, and this despite the extreme market environment
considered in our analysis.
Source: Bloomberg, QMS Advisors
Low Volatility StrategyRisk Efficiency in Passive Investing
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A...E Ssdolno | tel: +41 (0)78 922 08 77 | e-mail: [email protected] | website: www.qmsadv.com LTdb 0
Low Volatility StrategyPerformance
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A...E Ssdolno | tel: +41 (0)78 922 08 77 | e-mail: [email protected] | website: www.qmsadv.com LTdb 1
Low Volatility StrategySignificantly Reduced Volatility
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A...E Ssdolno | tel: +41 (0)78 922 08 77 | e-mail: [email protected] | website: www.qmsadv.com LTdb 2
Low Volatility StrategyConsistently Higher Information Ratios
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A...E Ssdolno | tel: +41 (0)78 922 08 77 | e-mail: [email protected] | website: www.qmsadv.com LTdb 3
Low Volatility StrategyReduced Drawdown Risks
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A...E Ssdolno | tel: +41 (0)78 922 08 77 | e-mail: [email protected] | website: www.qmsadv.com LTdb 4
Low Volatility StrategyComparative Distribution of Weekly Returns
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A...E Ssdolno | tel: +41 (0)78 922 08 77 | e-mail: [email protected] | website: www.qmsadv.com LTdb 5
Low Volatility StrategyRelative Weekly Distribution of Returns
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A...E Ssdolno | tel: +41 (0)78 922 08 77 | e-mail: [email protected] | website: www.qmsadv.com LTdb 6
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Low Volatility StrategyA Simple Approach to Higher Portfolio Efficiency