• Following past crises, investors have tended to revalue defensive options— pushing up the relative performance of low volatility securities.
  • While no investment strategy works exactly as expected all of the time, we continue to believe that managed volatility strategies will provide some measure of loss mitigation during the next significant equity drawdown.

With the potential to deliver equity-like returns with lower expected volatility over the long run, we believe the appeal of managed-volatility exposure within a broader portfolio is apparent. Depending on how the allocation is funded (meaning which combination of traditional stocks and bonds are sold to purchase low-volatility equity), it can allow for potentially higher expected returns, lower expected volatility, or both.

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In the two part Making the Case for Managed Volatility series, we will highlight how current valuations support the current case for managed volatility strategies and how changing inflation expectations should support relative returns going forward.

Glossary
  • Bear market refers to a period of steadily decreasing stock prices, typically marked by a 20% drop from recent highs.
  • Bull market refers to a period of steadily increasing stock prices.
  • Composite refers to a combination of several measurements or data types.
  • Full market cycle refers to a period of time containing a wide variety of economic trends and market environments, generally including a bull market through a bear market and back again to the start of a new bull market.
  • Growth stocks exhibit steady price or earnings growth above that of the broader market.
  • Mega-cap stocks are companies with market capitalizations over $200 billion.
  • Pro-cyclical stocks tend to be correlated with the overall economy and typically increase when the economy is growing quickly.
  • SEI Low Volatility Factor Composite is a composite index of underlying ratios that SEI has determined to be appropriate measures of the low volatility factor.
  • SEI Value Factor Family is a composite index of underlying ratios that SEI has determined to be appropriate measures of the value factor.
  • Spread refers to the difference between two values.
  • Tercile is a number that divides an ordered set of data into three parts, each containing a third of the values.
  • Value stocks are those that are considered to be cheap and are trading for less than they are worth.
  • Z-score describes a value’s relationship to the average of a larger set of data.
Index Definitions
  • MSCI ACWI Index measures the activity of large- and mid-cap stocks in developed- and emerging-market countries.
  • MSCI Emerging Markets Index is a free float-adjusted market-capitalization-weighted index designed to measure the performance of global emerging-market equities.
  • MSCI Europe ex UK Index is designed to measure the performance of large- and mid-cap stocks in developed-market countries (excluding the U.K.) in Europe.
  • MSCI Japan Index is designed to measure the performance of large- and mid-cap stocks in Japan.
  • MSCI United Kingdom Index is designed to measure the performance of large- and mid-cap stocks in the U.K.
  • MSCI World Index measures the activity of large- and mid-cap stocks in developed-market countries.
  • Russell 1000 Index measures the activity of the U.S. large-cap equity market.
  • Russell 2000 Index measures the activity of the U.S. small-cap equity market.
  • S&P Developed Large Midcap Index measures the performance of stocks representing the top 85% of float-adjusted market cap in each developed country.

Legal Note

Important Information

This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events or a guarantee of future results. Positioning and holdings are subject to change. All information as of the date indicated. This information should not be relied upon by the reader as research or investment advice, (unless you have otherwise separately entered into a written agreement with SEI for the provision of investment advice) nor should it be construed as a recommendation to purchase or sell a security. The reader should consult with their financial professional for more information.

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