Preliminary agenda (as of August 4, 2011)
Subject to change
7:45 am - 8:45 am
Registration and Networking Breakfast
8:45 am – 9:00 am
Speaker: Terry Dennison, Conference Moderator, Mercer
9:00 am - 9:40 am
WORKSHOP: Why Low Volatility Wins: History, Explanations and the Future of Low Volatility
Over time and across world stock markets, low volatility portfolios have provided investment returns with lower risk and higher return than capitalization weighted benchmarks. Why has this effect been so consistent? Will higher returns and lower risk continue in the future? We look at the historical evidence of the low volatility anomaly and explain why the alpha exists and why it persists. Today, regulators are putting more emphasis on investment risk, consultants are helping clients step away from capitalization-weighted strategies, and index providers are supplying low volatility benchmarks. Given these structural changes, what will the future of low volatility investing look like?
9:40 am – 10:20 am
WORKSHOP: Introduction and Implementation of Low Volatility Equity
The notion that taking more risk is necessary to achieve greater return is deeply ingrained in most investors, a seemingly intuitive truth. Questioning the validity of such a deeply rooted belief may sound like heresy, but multiple researchers and decades of equity market data show it is possible to achieve the same or better returns with less risk within an asset class. This session will introduce the concept of low volatility and minimum variance investing and will review the various approaches available to investors and the pitfalls faced while gaining exposure to such strategies. This session will also discuss the implementation of low volatility investment strategies and their uses within a multi-manager portfolio.
10:20 am – 10:40 am
10:40 am – 11:25 am
PANEL DISCUSSION: Fitting Low Volatility Strategies into Strategic Asset Allocation
Low volatility investing is a new approach to investing in the asset classes that feature in many portfolios. How should investors integrate low volatility approaches into overall asset allocation and risk management strategies such as liability driven investing? How much of a portfolio should be allocated to low volatility and how does low volatility help to achieve portfolio goals? In an LDI context how can low volatility strategies improve the asset mix?
11:25 am – 12:05 pm
WORKSHOP: Understanding the Low-Volatility Anomaly
The success of low volatility stock portfolios may well be the greatest anomaly in finance. For more than 40 years, portfolios comprised of low risk stocks have substantially outperformed their higher-risk counterparts. This runs counter to traditional finance theory, which rests upon the notion that increased risk is rewarded by higher expected return. The key principles of behavioral finance may explain both the reasons for this anomaly as well as its persistence across markets and time. In this thought provoking, interactive session, we will review some of the key behavioral tendencies that seem to afflict the majority of investors, including a preference for lotteries, representativeness bias, and overconfidence. Participants will then learn how these biases, as well as the structural limitations of the marketplace, make it very likely that the low volatility anomaly will persist over time.
12:05 pm – 1:15 pm
1:15 pm – 1:45 pm
PRESENTATION: Implementation Options and Considerations
The evidence that capturing equity returns may not require traditional levels of equity risk seems strong, so how should an institutional investor exploit this anomaly? What are some of the approaches that investment managers have developed and investors are using? Does it make sense to use multiple managers? What are the pros and cons? Will they really produce different results or are they all means to a similar end? Where is the value added in these various strategies? This presentation will provide an overview of the implementation approaches and considerations.
1:45 pm – 2:25 pm
WORKSHOP: Low Volatility Strategies in Turbulent Markets
Past results suggest that high risk and high beta stocks have historically provided poor risk-adjusted returns. Minimum volatility strategies seek to exploit this anomaly and have historically provided attractive risk-adjusted returns. However, minimum volatility strategies can produce wide swings in relative returns due to high tracking errors and sector concentrations. Investors may not be able to persevere in a strategy that trails by wide margins during periods of market exuberance, even if the strategy ultimately proves its worth with a smaller decline in any subsequent market decline. Are there ways to pursue this strategy while also moderating relative risk?
2:25 pm - 3:20 pm
PANEL DISCUSSION: Managed Volatility in the Context of Alternative Equity Strategies
Managed volatility portfolios feature low absolute risk, a lack of benchmark sensitivity and low correlations with cap-weighted equity portfolios. For these reasons, they are often grouped with hedge funds and other alternative investments for asset allocation purposes. This panel discussion will consider managed volatility strategies in the context of a number of alternative equity constructions --including hedge funds, fundamental indexing and passive managed volatility implementations – and discuss the implications for asset allocation as well as for benchmarking and performance measurement.
3:20 pm – 3:40 pm
3:40 pm - 4:20 pm
WORKSHOP: Living with a Defensive Equity Strategy
While the evidence supporting low volatility strategies is pervasive and the arguments are persuasive, living with these defensive strategies is a challenge. Investors must expect extended periods of underperformance relative to broad market equities, and some strategies have unintended biases and concentration. This workshop will examine the pattern of returns and the nature of portfolios across a range of implementation approaches. It will also address the governance challenge, particularly as this may well be a major contributor to the low volatility effect in the first place.
4:20 pm - 5:05 pm
PANEL DISCUSSION: Liquidity and Low Volatility: The Frontiers of Low Volatility Investing
For those investors who find the low volatility story convincing, many may seek to use the strategy to gain a core equity or beta exposure to equities. But this reorientation of portfolio risk does raise further questions. How much money can be invested in these strategies? What will it cost? How should an investor adjust for liquidity when forming low volatility portfolios? How will the market for low volatility strategies evolve over the next few years? This panel discussion will address the future of low volatility strategies in portfolio investing.
5:05 pm – 6:30 pm
Closing Cocktail Reception