Eastspring Investments
Apr 2024 | 2 min read
01
Win by losing less
While market declines are an inevitable part of the investing journey, experiencing smaller losses means that there is less ground to cover in order to reach breakeven. For example, a USD1000 investment that falls 50% will need to rebound 100%
to breakeven. However, if the investment falls 30%, it will only need to climb 43% to reach its original value.
Note: This makes it easier for the investment to keep pace with the market over the long term and deliver comparable returns.
02
Avoid missing the market’s best days
Low volatility strategies help temper the volatility in portfolios, allowing investors to stay invested in choppy markets. An investor who started with USD100k and stayed invested in Asian equities over the last 15 years, for example, would have
an ending portfolio of USD306K, USD123k more than someone who missed the market’s 10 best days1.
Note: By staying invested, investors reduce the risk of missing the market’s best days which can significantly lower their overall returns.
03
Maximise the power of compounding
Compounding effects are more pronounced when returns are less volatile. By staying invested and participating in the market’s upside while losing less during downturns, even small gains are magnified over time.
Note: A low volatility portfolio potentially accumulates more wealth over the long term by benefitting more fully from the power of compounding.
04
Get rewarded for taking less risk
Studies show that low volatility stocks, despite being less risky, outperform their benchmarks over time. This challenges the conventional wisdom that investors need to take on more risk to get higher returns. This phenomenon, known as the low
volatility anomaly, is a result of certain behavioural biases among investors, one of which is the tendency to overpay for attention grabbing stocks. The low volatility anomaly is observed across different market capitalisations and regions.
Note: A low volatility portfolio can achieve higher returns but with lower volatility.
05
Enjoy a steadier path towards your financial goals
Going into the rest of 2024, investor sentiment may be affected by geopolitics and election outcomes. On the macro front, varying expectations of Fed rate cuts this year can result in significant volatility in asset markets.
Note: By prioritising low volatility and loss avoidance, low volatility strategies can help investors enjoy a steadier path towards their financial goals.
Read our insights to find out why being slow and steady can help investors win the investment race.
Access expert analysis to help you stay ahead of markets.
- Follow
Interesting reads
Sources:
1 Based on daily total returns of the MSCI AC Asia ex Japan Index in USD terms for 15 years as of 26 March 2024.
Singapore by Eastspring Investments (Singapore) Limited (UEN: 199407631H)
Australia (for wholesale clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore, is exempt from the requirement to hold an Australian financial services licence and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Australian laws
Hong Kong by Eastspring Investments (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission of Hong Kong.
Indonesia by PT Eastspring Investments Indonesia, an investment manager that is licensed, registered and supervised by the Indonesia Financial Services Authority (OJK).
Malaysia by Eastspring Investments Berhad (200001028634/ 531241-U) and Eastspring Al-Wara’ Investments Berhad (200901017585 / 860682-K).
Thailand by Eastspring Asset Management (Thailand) Co., Ltd.
United States of America (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is registered with the U.S Securities and Exchange Commission as a registered investment adviser.
European Economic Area (for professional clients only) and Switzerland (for qualified investors only) by Eastspring Investments (Luxembourg) S.A., 26, Boulevard Royal, 2449 Luxembourg, Grand-Duchy of Luxembourg, registered with the Registre de Commerce et des Sociétés (Luxembourg), Register No B 173737.
United Kingdom (for professional clients only) by Eastspring Investments (Luxembourg) S.A. - UK Branch, 10 Lower Thames Street, London EC3R 6AF.
Chile (for institutional clients only) by Eastspring Investments (Singapore) Limited (UEN: 199407631H), which is incorporated in Singapore and is licensed and regulated by the Monetary Authority of Singapore under Singapore laws which differ from Chilean laws.
The afore-mentioned entities are hereinafter collectively referred to as Eastspring Investments.
The views and opinions contained herein are those of the author, and may not necessarily represent views expressed or reflected in other Eastspring Investments’ communications. This document is solely for information purposes and does not have any regard to the specific investment objective, financial situation and/or particular needs of any specific persons who may receive this document. This document is not intended as an offer, a solicitation of offer or a recommendation, to deal in shares of securities or any financial instruments. It may not be published, circulated, reproduced or distributed without the prior written consent of Eastspring Investments. Reliance upon information in this document is at the sole discretion of the reader. Please carefully study the related information and/or consult your own professional adviser before investing.
Investment involves risks. Past performance of and the predictions, projections, or forecasts on the economy, securities markets or the economic trends of the markets are not necessarily indicative of the future or likely performance of Eastspring Investments or any of the funds managed by Eastspring Investments.
Information herein is believed to be reliable at time of publication. Data from third party sources may have been used in the preparation of this material and Eastspring Investments has not independently verified, validated or audited such data. Where lawfully permitted, Eastspring Investments does not warrant its completeness or accuracy and is not responsible for error of facts or opinion nor shall be liable for damages arising out of any person’s reliance upon this information. Any opinion or estimate contained in this document may subject to change without notice.
Eastspring Investments companies (excluding joint venture companies) are ultimately wholly owned/indirect subsidiaries of Prudential plc of the United Kingdom. Eastspring Investments companies (including joint venture companies) and Prudential plc are not affiliated in any manner with Prudential Financial, Inc., a company whose principal place of business is in the United States of America or with the Prudential Assurance Company Limited, a subsidiary of M&G plc (a company incorporated in the United Kingdom).
