"Win more on down days": The big edge for defensive equities funds

Negative market catalysts are behaving like London buses in 2025. You wait a long time for one and then suddenly multiple come all at once.
After two years of impressive growth for equities, the last six months has been something of a wake up call for complacent investors, not that you’d know it from looking at current valuations.
For Hamish FitzSimons, Chief Investment Officer, Australian equities at AllianceBernstein, the big question is what happens next.
“We've got geopolitical wars, we've got trade wars, we've got interest rates moving around, we've got inflation moving around,” said FitzSimons. “Any one of those four things historically has been enough to be very damaging to markets, but the markets are up.”
“So I think a bit of volatility is to be expected. I guess what we're asking ourselves is, are the tremors before a quake or is the market going to have a third bull year again?”
One could argue it’s the perfect time for a defensive equities fund to prove its worth.
AllianceBernstein’s Managed Volatility Equities Fund (CBOE: AMVE), listed on Cboe, aims to do just that for equity investors looking for lower volatility and lower downside.

The genesis of the fund itself came out of a client’s observation that many of their investors sold out during the GFC and then missed the recovery.
“Their question to us was how do I soften the downside but still beat the market through the cycle and manage volatility? Our fund is the answer to that question,” said FitzSimons. “What it tries to do is win when the markets are going down.”
The fund aims to capture 80% of the upside during good times, but only 50% of the drawdown during bad times. The overall result is a net positive, says FitzSimons.
“On average that's a winning play through the cycle. We've been running it for 11 years. It has beaten the market pretty handsomely through that time.”
“And frankly, some people just find that a much more relaxing or less stressful way to invest.”

Dancing by the door
With elevated valuations, especially in local equities, FitzSimons is cautious of getting caught out.
“What it reminds me of is before the global financial crisis, it's a little anecdote, but I can remember a journalist asked the CEO of Citigroup, Chuck Prince, are you taking risk off the table? There were tremors out there, the GFC hadn't happened yet.”
“And his answer was, well, the music's still playing, so you've got to keep dancing. And the next day I read in the paper this commentator wrote this really nice article and the headline was ‘Keep Dancing but Dance Near the Door’.”
“And I feel like there's a lot of people dancing near the door right now on some of these stocks that have run up a lot. They're waiting for the moment and they're pressing the sell button.”
Defying gravity
While equities remain strong in the face of multiple global headwinds, there’s only so far momentum can take you.
“Cash earnings is gravity, right? You can only defy gravity for so long. It will come and drag you back to a reasonable valuation,” says FitzSimons.
“There are certain stocks that are defying gravity right now. I’m talking about the Big Four banks, Wesfarmers. They're about a third of the market and they've been dragging the market up.
“And the reason why I say they defy gravity is because their earnings outlook hasn't particularly improved. They're just getting more expensive without necessarily improving their economic value.”
It’s why AllianceBernstein are not just underweight banks but completely out of them.
“All of the banks are very expensive. It's very hard to see where the good news is coming from.”
Instead they’re looking at Australian companies likely to grow earnings, like Coles and Telstra. They’re also keen on internationally-exposed homegrown stocks like ResMed, Sonic and Aristocrat.
“We think the earnings outlook for all those companies is pretty strong going forward. And they're somewhat economically independent. The macro could move around - they'll kind of do fine through all that.”
They’re also keen on gold, but wary of the risks of gold miners.
“We do like gold. We like exposure to the gold price,” he says.
“Investing in gold companies, as you know, can be problematic. They fill up with water, they turn into swimming pools, equipment breaks, all sorts of things go wrong. So we try and own a lot of different gold companies to diversify the operating mines that we're exposed to and get a cleaner read on just being invested in the gold price.”
Make sure to watch the full interview above for more of FitzSimons’ insights on Aussie equities and more information on AllianceBernstein’s Managed Volatility Equities Fund.
Smooth the ride with AllianceBernstein
At times of market uncertainty, a defensive equities strategy can help you smooth the ride while providing stronger long-term returns.
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