Despite inevitable hiccups, Conservative Equities’ track record shows our approach adds value. Since inception, our flagship strategies have been able to beat both the market and generic low-risk products.
For over 13 years now, the Robeco Conservative Equities approach has proven able to deliver added value in both developed and emerging markets. Our flagship strategies in both categories have outperformed their two reference indices, the market index and the main minimum volatility index, gross of fees, as shown in Figure 1.
But it hasn’t all been smooth sailing. There have also been occasional bumps along the way, with periods of lagging performance. In other words, we won’t beat all the indices all the time.
Such hiccups are inevitable for an active low-risk strategy that is benchmark-agnostic, unconstrained by tracking error limits, and characterized by a typical active share of 80% versus the market index and around 70% versus the minimum volatility index, as provided by MSCI. Moreover, weaker periods have always been followed by strong recovery, supporting the long-term track record.
Conservative Equities is an active low-risk strategy, aiming for long-term stable returns and a high income. Its diversified and actively positioned portfolio is created through a factor-based, bottom-up stock selection process and a straightforward portfolio construction process. The objective is to maximize the absolute return-risk ratio over a full performance cycle.
Currently, our Global Developed Conservative Equities strategy seems to be going through one of these rougher patches, in particular when compared to the MSCI World Minimum Volatility Index. Comparatively, the strategy’s performance relative to the MSCI World Index has been more consistent with expectations.
The main reason for the recent higher return for the minimum volatility index has been its bias towards low-risk stocks with a higher valuation, as expensive stocks outperformed cheap stocks. Conservative Equities has had, and still has, a valuation gap of around 20% versus the index, as it selects low-risk stocks with an attractive valuation, high pay-out yield and positive momentum.
Performance of Robeco Global Developed Conservative Equities strategy versus the MSCI World Minimum Volatility Index was especially weak in 2018. As a result, short-term performance of the strategy, up to five years, looks less strong relative to this specific index, while the long-term track record remains intact.
The situation is quite different in emerging markets, where the value factor has been a positive contributor to relative performance for our Emerging Conservative strategy over the last few years. In these markets, the strategy’s preference for low-risk, high-dividend emerging markets stocks has worked well, both versus the MSCI EM Index and MSCI EM Minimum Volatility Index.
Despite the recent value drag in developed markets, both strategies performed in line with expectations
Overall, however, despite the recent value drag in developed markets, both strategies performed in line with expectations. They lagged in strong bull markets, like in 2017 and during the periods of rising markets seen in 2018 and 2019. But they also delivered strong risk reduction in falling markets, like in February/March 2018, the last quarter of 2018, and in May and August 2019.
Moreover, we see the current valuation gap between Conservative Equities and the MSCI Minimum Volatility indices as an opportunity for future outperformance in both developed and emerging markets. This is especially the case given the lower expected equity returns that Robeco projects for the next five years.1
Over the last few years, most developed markets investors have focused on growth stocks that featured high earnings growth, regardless of valuations. This is not unusual behavior in a bullish, late-cycle phase of the market. But, as the market cycle matures, stocks with a high valuation and rapid earnings growth should lose some shine.
Dividend, capital protection, and reasonable valuation levels may in the meantime become more relevant again for investors, as they usually do in more difficult times. In such a scenario, we expect our focus on low-risk stocks with a high dividend yield and attractive valuation levels can show its added value once more, in both developed and emerging markets.
1See our latest ‘Expected Returns 2020-2024’ report for more details.
The content displayed on this website is exclusively directed at qualified investors, as defined in the swiss collective investment schemes act of 23 june 2006 ("cisa") and its implementing ordinance, or at “independent asset managers” which meet additional requirements as set out below. Qualified investors are in particular regulated financial intermediaries such as banks, securities dealers, fund management companies and asset managers of collective investment schemes and central banks, regulated insurance companies, public entities and retirement benefits institutions with professional treasury or companies with professional treasury.
The contents, however, are not intended for non-qualified investors. By clicking "I agree" below, you confirm and acknowledge that you act in your capacity as qualified investor pursuant to CISA or as an “independent asset manager” who meets the additional requirements set out hereafter. In the event that you are an "independent asset manager" who meets all the requirements set out in Art. 3 para. 2 let. c) CISA in conjunction with Art. 3 CISO, by clicking "I Agree" below you confirm that you will use the content of this website only for those of your clients which are qualified investors pursuant to CISA.
Representative in Switzerland of the foreign funds registered with the Swiss Financial Market Supervisory Authority ("FINMA") for distribution in or from Switzerland to non-qualified investors is ACOLIN Fund Services AG, Affolternstrasse 56, 8050 Zürich, and the paying agent is UBS Switzerland AG, Bahnhofstrasse 45, 8001 Zürich. Please consult www.finma.ch for a list of FINMA registered funds.
Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco/RobecoSAM AG product should only be made after reading the related legal documents such as management regulations, articles of association, prospectuses, key investor information documents and annual and semi-annual reports, which can be all be obtained free of charge at this website, at the registered seat of the representative in Switzerland, as well as at the Robeco/RobecoSAM AG offices in each country where Robeco has a presence. In respect of the funds distributed in Switzerland, the place of performance and jurisdiction is the registered office of the representative in Switzerland.
This website is not directed to any person in any jurisdiction where, by reason of that person's nationality, residence or otherwise, the publication or availability of this website is prohibited. Persons in respect of whom such prohibitions apply must not access this website.