Performance & Volatility
Last valuation date : 26-02-2020
Risk / Return from 14-03-2013
All information for an index prior to its Inception Date is back-tested, based on the methodology that was in effect on the Inception Date. Back-tested performance, which is hypothetical and not actual performance, is subject to inherent limitations because it reflects application of an Index methodology and selection of index constituents in hindsight. No theoretical approach can take into account all of the factors in the markets in general and the impact of decisions that might have been made during the actual operation of an index. Actual returns may differ from, and be lower than, back-tested returns.
The key elements of the index methodology are available upon demand.
The current low rate environment favours a flexible and differentiated approach to investing while remaining alert to downside risks.
By not being tied to a particular equity benchmark an absolute return investment aims to produce more consistent positive returns over a given investment horizon, particularly suitable in volatile markets.
To this end, Natixis has designed the NXS Risk Parity Fund Allocator Index. The index offers exposure to a basket of global multiasset funds, and follows a robust, dynamic rule-based strategy with an embedded Risk Parity mechanism, which aims to regularly allocate the same volatility budget between the funds based on their realised volatility
The NXS Risk Parity Fund Allocator Index is a dynamic strategy index. It follows simple rules that dynamically
weights the eight funds according to their realised volatility and is rebalanced quarterly.
Additionally, the index embeds a risk management mechanism that maintains the volatility of the index at or below 3.50%.
The portfolio is composed of 8 funds:
• Morgan Stanley – Global Opportunity Fund
• Amundi-Pioneer – U.S. Fundamental Growth Fund
• Merian – Global Equity Absolute Return Fund
• Allianz – Strategy 50 Fund
• Pimco – Income Fund
• Jupiter JGF – Dynamic Bond Fund
• Candriam Bonds – Euro High Yield Fund
• Nordea – European High Yield Bond Fund.
While theoretical finance assumes that riskier assets should have higher expected returns, empirical evidence shows that low volatility investment portfolios can in fact produce higher
absolute returns than riskier portfolios.
This ‘low volatility anomaly’ has been observed for over 40 years and has recently received increased interest due to the outperformance of low volatility assets. Furthermore this anomaly is expected to persist as the contributing factors creating this market inefficiency (tracking error minimisation, outperformance driven asset management, behavioural bias, etc.) are likely to continue.
The core idea of the Risk Parity mechanism is therefore to generate higher absolute returns by providing the same risk allocation to each different asset within the portfolio.