Differences in factor exposures explain why the relative performance of the Conservative Equities strategy tends to be erratic over time, even though it generates the highest long-term risk-adjusted returns compared to the market and all major MSCI single-factor indices. For instance, there is a significant chance that Conservative Equities will underperform the MSCI World Minimum Volatility Index on a one-year (31%) or five-year basis (11%).
The Robeco Conservative Equities strategy is successful over a full economic cycle
The past five years have been marked by particularly weak performance by the value factor. In some cases, momentum compensated for this but, conversely, it was often weak when value was strong. The value and momentum tilt of the Robeco Conservative Equities explains why, in more recent times, the strategy has lagged the MSCI World Minimum Volatility Index.
However, our analysis also shows the Robeco Conservative Equities strategy is successful over a full economic cycle, outperforming both the market and the MSCI World Minimum Volatility Index. The strategy’s enhanced exposure to the value factor helps boost returns during recession and recovery periods, while exposure to the momentum factor is beneficial during periods of above-average economic growth.
Predicting single-factor index performance is even more difficult than predicting economic downturns and recoveries. Therefore, we argue that the Robeco Conservative Equities strategy, with its enhanced exposure to multiple proven factors, it is highly suitable for long-term investors and those who are expecting the best but preparing for the worst.
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