Defensive when needed?

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Defensive when needed?

Scientific Beta tackles the lack of robustness of minimum and low volatility offerings

Today, Scientific Beta is announcing the availability of the Maximum Volatility Protection (MVP) option, which, added to Scientific Beta's High Factor Intensity (HFI) Low Volatility index, provides a highly defensive offering when needed with a reduction in the index's market beta in difficult times and very strong protection of the capital. This offering aims to respond to an important shortcoming in traditional Low Volatility/Minimum Volatility offerings, whose volatility and market exposure increases strongly in periods of very high volatility and therefore crisis periods. Based on dynamic allocation that allows Scientific Beta's low volatility indices to be protected against periods of strong volatility the HFI Low Volatility Maximum Volatility Protection index ensures the investor that the low average volatility of the low volatility index is representative of the risks of the proposed strategy, and notably that in periods of crisis there is no increase in the risk of the investment.

1 Year Rolling Volatility
The analysis runs from 15-Jun-2007 to 30-Jun-2019. The rolling volatility is based on 1-Year daily total returns with a 1-week step size and is annualised. The index used is the SciBeta Developed High-Factor-Intensity Low Volatility Diversified Multi-Strategy Maximum Volatility Protection. We use three different competitor defensive strategies to get an average 1-Year rolling volatility: MSCI World Minimum Volatility, FTSE Developed Minimum Variance and Robeco QI Institutional Global Developed Conservative Equities. Scientific Beta and Bloomberg.


Commenting on the launch of this defensive offering, Dr Noël Amenc, CEO of Scientific Beta, said, “Traditional Low Volatility and Minimum Volatility strategies have failed to protect investors against peaks in volatility, which more often than not correspond to bear markets. Very clearly, if an investor wishes to modify the profile of their existing portfolio to make it more defensive, if a client wishes to take a defensive tactical bet, or if a client wants to have a strongly defensive allocation, Scientific Beta's Low Volatility offering with the Maximum Volatility Protection option is probably the best on the market.”

  • Recommended for investors looking for absolute defensiveness
  • Unlike traditional Low Volatility indices, the defensive nature of the Low Volatility indices using the Maximum Volatility Protection control option increases in situations of strong volatility of declining markets
  • This solution offers very good conditional properties:
    • Lower market beta and controlled volatility in distressed times
    • Higher market beta in good times
  • Improved risk-adjusted performance over the long-term, because in spite of its strong Low Volatility exposure, this index, unlike other Low Volatility/Minimum Volatility strategies, has strong overall factor intensity.

A link to an overview of Scientific Beta's approach to defensive solutions can be found below:
Overview: Designing More Defensive Solutions, October 2019, Scientific Beta White Paper

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About Scientific Beta: As part of its policy of transferring know-how to the industry, EDHEC-Risk Institute has set up Scientific Beta. Scientific Beta is an original initiative which aims to favour the adoption of the latest advances in smart beta design and implementation by the whole investment industry. Its academic origin provides the foundation for its strategy: offer, in the best economic conditions possible, the smart beta solutions that are most proven scientifically with full transparency of both the methods and the associated risks. Scientific Beta An EDHEC-Risk Institute Venture 1 George Street, #15-02, Singapore 049145 E-mail: contact@scientificbeta.com Telephone: +33 493 187 851 (3am-11pm CET) Web: www.scientificbeta.com

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