Year after year, quarter after quarter, investors are confronted with the question: Is the return of my active strategy above or below the benchmark? Now, it is in the nature of an active strategy that its performance deviates from the benchmark. Short-term performance alone says little about whether the strategy is suitable for achieving long-term investment objectives. What is important is that the deviation in returns can be plausibly explained, rather than simply occurring by chance.
As an active manager who invests systematically according to strict rules, OLZ can explain the out- or underperformance generated. Using the example of our "OLZ Equity World ex CH Optimized ESG" fund, we illustrate the main drivers of the relative performance of our equity strategies. In doing so, we analyze the period from December 31, 2004 to December 31, 2020.
Market performance and market risk change
It is obvious that market development is of central importance. In phases of negative markets, one is well served by a defensive portfolio, while a riskier orientation benefits when the market performs strongly. The OLZ Minimum Risk Portfolio, as its name suggests, reduces risk and is more defensive in nature. Accordingly, our fund outperforms the benchmark during negative market moves and periods of stress, while it may not fare as well during strong positive markets.
Because of our risk focus, relative performance also depends on market risk. If investor nervousness increases (rising market volatility), our approach generates significantly greater added value than if the markets calm down. The combination of these two factors results in the following four market regimes.