"Win more on down days": The big edge for defensive equities funds
Hamish FitzSimons on why defensive stocks are underappreciated, the parts of the ASX his fund is keen on, and those it isn't.
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.
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AB Managed Volatility Equities Fund - MVE Class - Active ETF (AMVE)
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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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Tom is a Content Editor at Livewire Markets, having worked as a writer and editor for 10 years, specialising in investing and personal finance.
He has previously worked at Finder, FourFourTwo and Man Of Many covering everything from film to football.
He has a Masters in Media Production and a Bachelor's in Journalism.
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AllianceBernstein Disclaimer
AB Managed Volatility Equities Fund–MVE Class–Active ETF (“MVE-Class”) is a unit class of the AB Managed Volatility Equities Fund (“Fund”) (ARSN 099 739 447). AllianceBernstein Investment Management Australia Limited (ABN 58 007 212 606, AFSL 230 683) (“ABIMAL”) is the responsible entity of the Fund and is the issuer of units in the Fund. ABIMAL has appointed AllianceBernstein Australia Limited (ABN 53 095 022 718, AFSL 230 698) (“ABAL”) as the investment manager of the Fund. ABAL in turn has delegated a portion of the investment manager function to AllianceBernstein L.P. The MVE-Class’ Product Disclosure Statement (“PDS”) is available by contacting the client services team at AllianceBernstein Australia Limited at (02) 9255 1299 or at www.alliancebernstein.com.au. Investors should consider the PDS in deciding to acquire, or continue to hold, units in the Fund.
A Target Market Determination (“TMD”) for the AB Managed Volatility Equities Fund (Managed Fund)–MVE Class–Active ETF is available free of charge from our website www.alliancebernstein.com.au. The TMD sets out the class of persons who comprise the target market for the AB Managed Volatility Equities Fund (Managed Fund) – MVE Class and the distribution conditions that are applicable, together with a number of other matters which should be considered by retail investors and their advisers.
Information, forecasts and opinions (“Information) set out in this document are not personal advice and have not been prepared for any recipient’s specific investment objectives, financial situation or particular needs. Neither this document nor the information contained in it are intended to take the place of professional advice. Please note that past performance is not indicative of future performance and projections, although based on current information, may not be realised. Information can change without notice and neither ABIMAL or ABAL guarantees the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained in this report, neither ABIMAL or ABAL warrants that this document is free from errors, inaccuracies or omissions.
This document is released by ABAL.
Disclaimer on Security Samples
References to specific securities are presented to illustrate the application of our investment philosophy and portfolio construction process and are not to be considered recommendations by ABAL. The specific securities identified and described in this presentation do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable. The views of any specific securities identified and described in this document are those of a specific portfolio management team and portfolio strategy at a point in time and which may differ from the views of other portfolio managers managing other strategies.
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Cboe Australia is the holder of an Australian Markets Licence to operate a financial market in Australia. This information is provided for informational purposes only. It does not take into account the particular investment objectives, financial situation, or needs of any individual or entity. Under no circumstances is it to be used as a basis for, or considered as an offer to, become a participant of or trade on Cboe Australia or undertake any other activity or purchase or sell any security, or as a solicitation or recommendation of the purchase, sale, or offer to purchase or sell any security. While the information has been obtained from sources deemed reliable, neither Cboe Australia nor its licensors, nor any other party through whom the user obtains any such information: (i) makes any guarantees that it is accurate, complete, timely, or contains correct sequencing of information; (ii) makes any warranties with regard to the results obtained from its use; or (iii) shall have any liability for any claims, losses, or damages arising from or occasioned by any inaccuracy, error, delay, or omission, or from the use of the information or actions taken in reliance on the information. Reproduction or redistribution of this information is prohibited except with written permission from Cboe Australia.
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Tom is a Content Editor at Livewire Markets, having worked as a writer and editor for 10 years, specialising in investing and personal finance. He has previously worked at Finder, FourFourTwo and Man Of Many covering everything from film to...
Expertise
Tom is a Content Editor at Livewire Markets, having worked as a writer and editor for 10 years, specialising in investing and personal finance. He has previously worked at Finder, FourFourTwo and Man Of Many covering everything from film to...
Expertise
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