Volatility Management Strategies
These strategies aim to mitigate exposure to market volatility by setting caps on the maximum level of volatility that a portfolio can experience, in an effort to protect portfolios from excessive market fluctuations.
Introduction
To address this, some are turning to volatility-controlled strategies, known as cap volatility management strategies, which aim to reduce risks while preserving gains from volatile assets. These strategies aim to mitigate exposure to market volatility by setting caps* on the maximum level of volatility that a portfolio can experience, in an effort to protect portfolios from excessive market fluctuations.
Capped Volatility Management can be applied to the equity subset of a multi-asset portfolio or to the entire multi-asset portfolio.
Benefits
Risks for cap volatility management strategies
Cap selection
Choosing an appropriate cap level based on the key features of the underlying is crucial in cap volatility management strategies. Investors should assess their risk tolerance and investment goals to determine the optimal cap level.
Trade-offs
Implementing a cap on a portfolio volatility may come with trade-offs. While it can reduce downside risk, it could also restrict the potential for increased returns during periods of strong market performance with high volatility.
No explicit downside protection
Selecting cap volatility management strategies for investors seeking explicit downside risk protection is not recommended. It could potentially underperform when higher risk assets consistently and steadily decrease in value.
Transaction costs
Cap volatility management strategies may result in higher transactions costs compared to a pure portfolio.
Why AXA IM?
Experienced team
The team at AXA IM has a long tenure of managing risked controlled solutions for their clients for the past 15 year, with a demonstrated history of crafting tailored solutions for large institutional investors and retail clients across multi-asset portfolios embedded in our insurance heritage DNA.
Our approach
Our experienced team utilises a well-established approach supported by proprietary quantitative tools and substantial resources in Quant Solutions, Trading, Risk Management, Responsible Investing, and other cross-functional resources to effectively structure and optimise solutions to meet specific client outcomes.
Flexibility to meet your needs
We offer flexibility in the product design throughout its lifespan, allowing for adjustments as clients' needs evolve. We maintain a collaborative mindset, ensuring customised reporting to cater to client needs.
Important information
No assurance can be given that our investment strategies will be successful. Investors can lose some or all of their capital invested. Our strategies are subject to risks including, but not limited to: equity; emerging markets; global investments; investments in small and micro capitalisation universe; investments in specific sectors or asset classes specific risks, liquidity risk, credit risk, counterparty risk, legal risk, valuation risk, operational risk and risks related to the underlying assets.
Disclaimer