Scientific Beta

Financial Investigator: "Defensive equity solutions are popular strategies because they provide better downside protection while also delivering good risk-adjusted return due to their exposure to the low volatility risk premium. There are two types of traditional defensive equity solutions: the factor harvesting approach, which explicitly selects low volatility stocks and weights those stocks by market capitalisation or inverse volatility, and an optimisation-based approach, which aims for the portfolio with the lowest volatility on the efficient frontier (termed the ‘minimum volatility portfolio)."

Financial Investigator 16/08/2022

By Dimitris Korovilas, Senior Product Specialist at Scientific Beta

"(...) Defensive equity solutions are popular strategies because they provide better downside protection while also delivering good risk-adjusted return due to their exposure to the low volatility risk premium. There are two types of traditional defensive equity solutions: the factor harvesting approach, which explicitly selects low volatility stocks and weights those stocks by market capitalisation or inverse volatility, and an optimisation-based approach, which aims for the portfolio with the lowest volatility on the efficient frontier (termed the ‘minimum volatility portfolio). Traditional defensive solutions, however, suffer from common drawbacks. (...)".