Minimum Variance Indices

Presented by

Brendan Maton

About this talk

Minimum Variance Indices have multiple usages for investors as part of their asset allocation: • Indices provide a portfolio with lower volatility (i.e. risk) but with full exposure to relevant equity markets. • Minimum Variance portfolios use less risk budget available to investors. • Due to efficient portfolio construction no “overspending” of risk in relation to achievable return. • Shortcomings and structural performance deficits of market cap weighted indices are mitigated through alternative weighting mechanism. STOXX+ Minimum Variance Indices have been developed in collaboration with Axioma, a leading provider of portfolio constructions tools and risk models. Axioma provides the fundamental factor model used to calculate the rebalancing portfolios. Multiple index versions to cater for a broader investor base • Create a stand-alone minimum variance strategy index family (unconstrained version) • Create a minimum variance improvement on market-cap. weighted benchmarks (regular version) Unconstrained index version is a novelty and offers the following benefits: • Full optimization to minimize risk • With only very basic constraints, there is the freedom to provide increased optimality in resulting portfolio • Resulting portfolio might have a bias towards certain properties (specific factor, geography etc.) as the aim is purely to minimize variance • The freedom is expected to provide lower risk

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