Donie O’Brien is head of quant portfolio management at Irish Life Investment Managers, which has more than €65bn of assets under management.
He is the lead portfolio manager for the Global Low Volatility Active Equity Fund, which recently passed its three-year history since launching in July 2014. It has grown to more than €2.1bn in assets. The fund is a component of the Irish Life multi-asset portfolios range of funds, and is also available in Canada through affiliate companies in the Great-West Lifeco group, to which Irish Life belongs.
Investment philosophy
The Global Low Volatility Active Equity Fund aims to achieve equity market returns over the long run. This means there is lower volatility and downside protection during significant market corrections such as the dotcom crash (2000-3) and the global financial crisis (2007-9).
The fund uses a systematic investment approach, which sees it target lower risk stocks with attractive valuations and strong balance sheets. “These stocks have been seen to have more stable returns than the market by losing less when markets fall,” said O’Brien.
He added that valuation is a major focus of the fund, and it has always had a lower price-to-earnings multiple than the broad equity market. In contrast, many other low volatility approaches have seen valuations grow more expensive over recent years; there has been significant buying of stocks with low volatility even if their fundamentals appear stretched.
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Performance
The fund has delivered a strong return of 39.5% since inception to end June 2017, compared with 37.6% for the broad global equity market. The market corrections of early 2016 and around the Brexit announcement in June last year were a good opportunity for the fund to deliver on its downside protection objectives, according to O’Brien.
“We sought to build a fund where investors can remain in equities and achieve a smoother journey over a full market cycle, and this is precisely what has occurred over the past three years,” he said.
Buying and selling
The fund is focused on overweight defensive sectors such as utilities and consumer staples and underweight higher-risk cyclical sectors such as technology and financials. Its top overweight holding is US pharma company Gilead Sciences, which accounts for 1.3% of the portfolio.
“The stock ticks a lot of boxes in our quantitative selection criteria, with low volatility, low price to earnings and good profitability characteristics,” said O’Brien, pictured.
One recent sell was Swedish firm Ericsson. “Its price had increased 20% since it was purchased, making its valuation less attractive versus peers,” said O’Brien. The fund made a timely exit, selling in May 2017 prior to a fall in Ericsson’s price.
Outlook
O’Brien said uncertainties exist in the market around Central Bank actions, Brexit negotiations and ultimate policy announcements under the new Trump administration in the US.
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“Our strategy has tended to deliver more stable returns during similar environments of uncertainty in the past,” he said.