Boutique alternatives shop AQR Capital Management has launched three funds that put a defensive spin on equities.
The AQR Emerging Defensive Equity Fund (AZEIX), AQR International Defensive Equity Fund (ANDIX) and AQR U.S. Defensive Equity Fund (AUEIX), each will invest in low-beta, high-quality companies in their respective regions.
They are designed to deliver equitylike returns without equitylike volatility, principal David Kabiller said.
“There's a lot of risk aversion from advisers right now,” he said. “Given the outlook for the next three to five years, it's easy to understand why.”
Investors have sought equity strategies that focus on low volatility.
The PowerShares S&P 500 Low Volatility ETF (SPLV) has grown to more than $2 billion in assets since its launch 14 months ago. A series of other low-volatility exchange-traded funds have followed in its wake.
Unlike passively managed low-volatility ETFs, which weight stocks based on past volatility, the AQR funds are actively managed and will use a series of fundamental screens, such as earnings-per-share volatility and low leverage, in addition to beta.
“Low-beta stocks tend to have the same characteristics as high-quality stocks,” Mr. Kabiller said.
Several studies have shown that over long time periods, stocks with low volatility tend to outperform.
The PowerShares S&P 500 Low Volatility ETF had a 9% return for the one-year period ended June 30, compared with 1.63% for the S&P 500.
Low-volatility strategies are likely to underperform during market rallies. During the fourth and first quarters, the S&P 500 gained 12%, while the return on the PowerShares ETF was half that.
jkephart@investmentnews.com
Twitter: @jasonkephart
