Opportunity: Conservative investing
Profiting by losing less
Risk and return are inseparable; that’s the common wisdom. But is this really true? Low-risk stocks tend to deliver a higher risk-adjusted return than high-risk stocks, capturing one of the oldest anomalies in empirical equity research.
Conservative investing offers stable equity returns and focuses on strong income and positive sentiment. Conservative stocks are often considered to be relatively boring, but that doesn’t make them less attractive.
Holding up in practice
We examined the performance of a conservative strategy over more than 150 years (January 1866 to December 2021); a period that contains several boom-bust cycles, wars and periods of deflation.
Conservative stocks delivered a positive annualized return in every decade, and beat their speculative peers in every periods.
These stocks typically provide stable and high long-term returns because they ‘win by losing less’. Their attributes of preserving capital in down markets and participating meaningfully in up markets are key to this. The approach works across different time periods.
Pim van Vliet
Head of Conservative Equities and Chief Quant Strategist
Market developments bode well for an actively positioned portfolio of stable, profitable companies with decent dividend growth.
Annualized return of conservative and speculative stocks per decade
Source: Robeco Quantitative Research. Performance in USD gross of fees and costs.
Why now ?
Position for tomorrow’s markets
Looking back over the last couple of years, we see that global equity markets experienced a prolonged bull market with relatively low volatility, high earnings growth, and low inflation, temporarily interrupted by the pandemic panic in March 2020.
But the market environment has been changing since the start of 2022. We expect the double-digit earnings growth to cool off in the coming years, with central banks starting to tighten, inflation rising and market valuations at records highs.
That bodes well for a strategy that looks for an actively positioned portfolio of stable, profitable companies with decent dividend growth, trading at a significant valuation discount versus the market index.
A solid equity strategy for tomorrow’s markets
Robeco is a pioneer in the field of quantitative investing, with an active approach to low-volatility investing based on award-winning research. Since it was launched in 2006, Robeco Conservative Equities has delivered superior equity returns with 24% less risk, as measured by volatility, than the market.
The strategy uses an enhanced approach to low risk, with the stock-ranking model combining the beta and volatility effects in one low-risk theme. It also includes characteristics such as low distress risk, high and stable income, attractive valuation and high quality in combination with positive momentum. Sustainability is integrated in the investment process, resulting in a lower ESG risk profile and smaller carbon footprint than the index.
Conservative Equities is available as Global Developed, European, Emerging Markets, All Country, US and Chinese A-share. The latest addition is a Climate & SDG-focused version.