K Switzerland Low Volatility Index

Investing continuously in Switzerland's most stable companies

 

PERLES on the K Switzerland Low Volatility Index

I. Achieving your goal with less volatility

The prevailing opinion among economists since the 1960s is that lower risk goes hand in hand with lower earnings expectations. Since the advent of Smart Beta strategies, this approach is increasingly being called into question. Studies show that it is quite possible to achieve excess returns with lower risk.* The K Switzerland Low Volatility Index applies this approach on the Swiss equity market. For this purpose, the index pursues a lowvolatility strategy. The basis for this is the 300 most liquid equities in Switzerland, from which the 20 securities with the lowest price fluctuation are selected each month. This can contribute significantly to calming the portfolio, especially in turbulent markets.

II. The efficient weighting

Smart Beta are transparent, rules-based investment strategies in which the index weighting is aligned according to such criteria as dividends, the price-to-earnings ratio, equal weighting, growth rates or low-volatility. In fact, the Smart Beta study published in November 2015 by the Cass Business School shows that in the period from January 1969 to December 2014 eight alternative weighting criteria performed better than the capitalization-weighted benchmark. The lowvolatility strategy yielded the highest risk-adjusted return among all eight examined weighting approaches.*

III. Stability in the Swiss equity market

The question of whether the low-volatility strategy might work in Switzerland has been impressively answered by the historical review of the K Switzerland Low Volatility NTR Index since the beginning of February 2006. Accordingly, not only was the index volatility lower than the SMITM – as expected – but at 7.0 percent per annum, the average return was more than twice as high as that of the Swiss benchmark index. This results in an impressive Sharp ratio, i.e. the risk-return ratio, of 0.47. This illustrates that, also in the Swiss equity market, sometimes strength lies in calmness.

*Source: Cass Business School, "Smart Beta", November 2015.

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