Please read this important information before proceeding further. It contains legal and regulatory notices relevant to the information contained on this website.
The information contained in the Website is NOT FOR RETAIL CLIENTS - The information contained in the Website is solely intended for professional investors, defined as investors which (1) qualify as professional clients within the meaning of the Markets in Financial Instruments Directive (MiFID), (2) have requested to be treated as professional clients within the meaning of the MiFID or (3) are authorized to receive such information under any other applicable laws. The value of the investments may fluctuate. Past performance is no guarantee of future results. Investors may not get back the amount originally invested. Neither Robeco Institutional Asset Management B.V. nor any of its affiliates guarantees the performance or the future returns of any investments. If the currency in which the past performance is displayed differs from the currency of the country in which you reside, then you should be aware that due to exchange rate fluctuations the performance shown may increase or decrease if converted into your local currency.
In the UK, Robeco Institutional Asset Management B.V. (“ROBECO”) only markets its funds to institutional clients and professional investors. Private investors seeking information about ROBECO should visit our corporate website www.robeco.com or contact their financial adviser. ROBECO will not be liable for any damages or losses suffered by private investors accessing these areas.
In the UK, ROBECO Funds has marketing approval for the funds listed on this website, all of which are UCITS funds. ROBECO is authorized by the AFM and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request.
Many of the protections provided by the United Kingdom regulatory framework may not apply to investments in ROBECO Funds, including access to the Financial Services Compensation Scheme and the Financial Ombudsman Service. No representation, warranty or undertaking is given as to the accuracy or completeness of the information on this website.
If you are not an institutional client or professional investor you should therefore not proceed. By proceeding please note that we will be treating you as a professional client for regulatory purposes and you agree to be bound by our terms and conditions.
The higher the risk, the more deluded the investors,” says Eric Falkenstein, PhD, quantitative investor and low-volatility expert. As a guest speaker at the Robeco 2012 Low-Volatility Investing seminar held in Rotterdam, he focused on the theory and evidence supporting the positive return from low-risk stocks.
As befits a financial expert, the title of Falkenstein’s talk was a formula, expressing that the risk premium is less than or equal to zero. Of course, this is in direct contrast to traditional investment theory and the Capital Asset Pricing Model (CAPM), which expects that higher risk will produce more return.
As Falkenstein describes it, “When the CAPM theory was created in the 1960s, the profession’s thought leaders pretty much assumed that the empirical corroboration would be easy…But the data have been very unkind, not just to their original model of risk and return (CAPM), but to any model purporting to capture the risk premium.”
The backtracking from CAPM began in 1992. This was the year when Eugene F. Fama, respected academic and an early proponent of CAPM, documented a flat relationship between risk and return. In an interview with the New York Times when the research was published, Fama admitted, “Beta as the sole variable explaining returns on stocks is dead.” Of course, there had been cracks in the CAPM before this, in particular, research by Dr. Robert Haugen, reporting a negative relationship between risk and return in US stocks, written in 1972 and published in 1975.
It was the sign of things to come. Over the past decades, a mountain of evidence has accumulated regarding lower-risk stocks producing better risk-adjusted returns than higher-risk stocks. One such study discussed by Falkenstein was research by Dimson, Marsh and Staunton (2005) analyzing more than a century of equity returns across 17 countries.
The result? “No positive correlation is seen between returns and volatility or other measures of risk,” said Falkenstein. “Among country equity returns, there is no clear risk premium. The US had about the same average top-line return relative to short-term debt from 1900-2005 compared with 17 other countries worldwide, about 5%.”
Evidence of higher risk leading to better returns is absent from more markets than just equities. During his presentation, Falkenstein produced evidence of zero or negative returns from higher-risk investments across a range of financial markets including credits, private equity and currencies. He also cited other areas as diverse as IPOs, horse racing and lotteries.
Falkenstein’s first book, “Finding alpha: the search for alpha when risk and return break down” was published in 2009 and delves into the theory and evidence supporting low-risk investing. His latest book, “The missing risk premium” is illustrated with a unicorn. The mythical beast represents the imaginary positive relationship between risk and return.