Our Risk Optimized Equity Solutions

Standard indices are not efficiently composed

Standard indices weight stocks according to size. This means that the larger a company's market capitalization, the greater its weight in the index. Financial market research confirms that this composition is far from optimal. From a risk/return perspective, a portfolio can be constructed more efficiently in order to subsequently lie on the efficiency curve.

Through our optimization to an efficient portfolio

In order to construct an efficient portfolio and thus be on the efficiency curve, return forecasts are required for all eligible securities. One exception is the so-called “ex-ante minimum variance portfolio,” the portfolio with the lowest risk. For this portfolio, risk forecasts that can be made more reliably and with less uncertainty are sufficient. This is exactly where our minimum variance approach comes in. We forecast the risk characteristics for each individual stock within a stock universe and use this to derive an optimally composed portfolio that also takes into account the correlations between the stocks. The portfolio is not only risk-optimized and diversified, but also takes strict sustainability criteria into account.

Optimization offers three advantages:

• A more stable portfolio: Risk-based portfolio optimization leads to greater diversification and security, which manifests itself in lower volatility and lower maximum losses.

• Long-term excess returns compared to the market average: The minimum variance portfolio exploits the low volatility premium. This results from the empirically proven fact that stocks with low price volatility achieve above-average returns in the long term. This premium is not new, but has been proven for several decades.

• Possibility of a higher equity allocation: Risk optimization allows you to increase the equity allocation within an existing risk profile and thus generate higher returns in the long term.

For you, this means that, given your chosen risk tolerance, you will have a higher proportion of equities in OLZ portfolios than in conventional portfolios.

The portfolio characteristics are transparent and predictable

Our quantitative and systematic OLZ portfolio optimization leads to a reduction in volatility and maximum losses. While outperformance can be expected in negative and volatile market phases, the defensive orientation of the portfolio usually leads to underperformance in strongly positive markets characterized by low volatility. In sideways-trending and slightly positive markets, OLZ strategies tend to outperform the benchmark.