Entry Points | Volatility Reduction

With the period of low-interest rates, low inflation, and low volatility seemingly in the rearview mirror, Portfolio Manager Brandon Smith, CFA, CAIA, explains how a value-oriented long/short equity strategy can potentially reduce volatility and create an opportunity for profit by separating the winners from the losers.

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Catalysts in Play: Following a decade in which U.S. equities have compounded at more than 15% annually, with very low volatility, investors seem to have become more focused on return and less focused on risk and downside protection, which could be a costly oversight. 

Entry Points: It appears that the regime of zero interest rates, low inflation, and an ever-expanding Federal Reserve balance sheet, with low equity volatility, is over. We firmly believe that the next 10 years are highly unlikely to resemble the previous decade in global equity markets. Thus, the prospects for long/short equity investing are promising. 

Volatility Reduction to Preserve Capital: Volatility reduction is extremely important, as the laws of mathematics dictate that volatility will eat away at a compound return stream over time. Additionally, volatility can lead to behavioral pitfalls such as loss aversion, causing investors to sell out of equities at inopportune times, further compounding a loss.

Win-by-Not-Losing Approach: A tried-and-true adage holds that if one loses 50% one year, she or he will need to make a return of 100% the next year to break even. In this video, we demonstrate how, with a simple average return of 7% annually, increased volatility leads to lower compound average returns in six different illustrative examples.  

Active Strategy: Value-focused long/short equity strategies can help investors weather periods of high volatility by reducing the loss of capital and creating the potential for profit by separating winners from losers. Disciplined execution of a bottom-up, value-driven investment approach – incorporating both quantitative analysis and fundamental research – can help help investors potentially stay ahead of changing market conditions.

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Statistics and other information taken from the following sources:

Definitions:

Volatility – In finance, volatility is the degree of variation of a trading price series over time, usually measured by the standard deviation of logarithmic returns. Historic volatility
measures a time series of past market prices.
Federal Reserve – The Federal Reserve System is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal
Reserve Act, after a series of fi nancial panics led to the desire for central control of the monetary system in order to alleviate fi nancial crises.
Compound returns – Compound return is the rate of return that represents the cumulative effect that a series of gains or losses has on an amount of capital over time.
Loss aversion – Loss aversion is the tendency to prefer avoiding losses to acquiring equivalent gains. The principle is prominent in the domain of economics. What distinguishes loss
aversion from risk aversion is that the utility of a monetary payoff depends on what was previously experienced or was expected to happen.

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Index returns are provided for comparison purposes only to show a broad-based index of securities, as the indices do not have costs, fees, or other expenses associated with their performance. In addition, securities held in either index may not be similar to securities held in the firm’s accounts. The trademarks and service marks referenced herein are the property of their respective owners. Third party data providers make no warranties or representations of any kind relating to the accuracy, completeness or timeliness of the data and have no liability for damages of any kind relating to the use of such data. Past performance is not an indication of future results. This document is not an offering of securities nor is it intended to provide investment advice. It is intended for information purposes only.

The views expressed in this video reflect those of Boston Partners as of the date of this video. Any such views are subject to change at any time based on market and other conditions and Boston Partners disclaims any responsibility to update such views. Discussions of market returns and trends are not intended to be a forecast of future events or returns.

Estimates reflect subjective judgments and assumptions. There can be no assurance that developments will transpire as forecasted and that the estimates are accurate.

Equity securities are volatile and can decline significantly in response to broad market and economic conditions.

Stephen Ferrara

Equity Trader

Mr. Ferrara holds a B.S. degree in business management from Suffolk University. He began his career in the investment industry in 2014.

Mr. Ferrara is an equity trader for Boston Partners. Prior to joining the firm in June 2023, he held the position of senior trader at Man Group.

John Zhao

Equity Analyst

Mr. Zhao holds a Bachelor of Arts degree from the Richard Ivey School of Business at Western University and an MBA from Harvard Business School. He began his career in the investment industry in 2015.

John Zhao

Mr. Zhao is an emerging markets industry analyst with Boston Partners specializing in the emerging markets technology sector of the equity market. He joined the firm in November 2021. Prior to his role at Boston Partners, Mr. Zhao worked as a Private Equity Associate in Salt Lake City and an Investment Banking Associate in Hong Kong.

Elizabeth Sheerin

Relationship Manager

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Elizabeth Sheerin

Ms. Sheerin is a member of the Relationship Management team at Boston Partners and she joined this team in 2011. She works with many of our key domestic and international clients in a client service and relationship manager capacity. Prior to joining our firm in June 2011, she was a Client Service Representative at Putnam Investments. She also held several financial services related internships including working for Merrill Lynch Global Wealth Management and State Street Global Advisors.

Kara Pattipati, CFA

Relationship Manager

Ms. Pattipati holds an M.A. in International Relations from the University of St. Andrews. She holds the Chartered Financial Analyst® designation. Ms. Pattipati began her career in the industry in 2012.

Kara Pattipati

Ms. Pattipati is a member of the Relationship Management team at Boston Partners. She works with many of our key domestic and international clients in a client service and relationship manager capacity. Prior to joining Boston Partners in November 2016, she was a business development associate at Geode Capital Management.

Marlon Thompson

Equity Trading Assistant

Mr. Thompson holds a B.S. degree in finance from Boston College. He began his career in the investment industry in 2011.

Marlon Thompson

Mr. Thompson is an equity trading assistant for Boston Partners. Prior to assuming this role, he worked as a portfolio operations analyst. Before joining the firm in May 2021, Mr. Thompson held several roles including Vice President of Operations at Benefit Street Partners LLC and positions at International Fund Services (IFS) and Pioneer Investments.

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Edward Stansky

Equity Analyst

Mr. Stansky holds a B.S. degree in economics from Duke University and a M.B.A. from NYU’s Stern School of Business. He began his career in the investment industry in 2016.

Edward Stansky

Mr. Stansky is an equity research analyst with Boston Partners specializing in the energy, metals & mining sectors of the equity market. He joined the firm in September 2021. Prior to this role, he worked as a high yield and leveraged loan analyst at DDJ Capital and as an investment banking analyst in debt advisory at BofA Merrill Lynch.

Jonah Frank

Equity Analyst

Mr. Frank was a student at Boston University where he earned a B.S. degree in business administration with a concentration in finance and management information systems. Mr. Frank began his career in the investment industry in 2021.

Jonah Frank

Mr. Frank is an equity research analyst with Boston Partners specializing in emerging markets energy and materials sectors of the equity market.

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Matthew Donovan

Equity Analyst

Mr. Donovan holds a B.A. in Economics from the University of Pennsylvania. Mr. Donovan began his career in the investment industry in 2022.

Mark Donovan

Mr. Donovan is an equity analyst with Boston Partners specializing in emerging markets financials, telecommunications, food, beverage & tobacco, restaurants, hotels and personal products. Prior to this, he was a Research Analyst for the Boston Partners Sustainability and Engagement Team. He was responsible for original ESG/Sustainability research on companies held in Boston Partners’ portfolios. Mr. Donovan joined Boston Partners in February 2022.

Jett Dziama

Equity Analyst

Mr. Dziama holds a B.S. degree in business administration with a concentration in finance and a minor in economics from Boston University. Mr. Dziama began his career in the investment industry in 2023.

Mr. Dziama is an equity analyst with Boston Partners. Mr. Dziama is focusing his analytical efforts on banks and the financial services sector of the equity market. He joined Boston Partners in August 2023.

Jack Birmingham

Product Specialist

Mr. Birmingham holds a B.A. degree in political science from Hobart College. He began his career in the industry in 2018.

Jack Birmingham

Mr. Birmingham is Product Specialist for the Boston Partners value equity strategies based in the Boston office, responsible for clients, consultants and prospects outside of North America. Prior to this role, he joined the firm in June 2018 as an RFP Writer and Database Coordinator in the Marketing Department, where he supported all of the firm’s equity strategies.

Jason Reid

Senior Compliance Manager

Jason holds a B.S. degree from Fitchburg State University as well. He began his career in the industry in 2004.

Jason Reid

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Newcomb Cole

Consultant Relations Director

Mr. Cole holds a B.S. degree in finance from Syracuse University. He also holds the FINRA Series 7 and 63 licenses and began his career in the industry in 1990.

Newcomb Cole

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Kathryn Y. Burke

Head of Client Service

Ms. Burke holds a M.A. in East Asian Studies from Duke University and a B.A. degree in Asian Studies from Dartmouth College. Ms. Burke holds FINRA licenses 7 and 63. She has seventeen years of industry experience.

Kathryn Y. Burke

Ms. Burke is the Head of Client Service for Boston Partners. In this role she has management responsibility for the firm’s client service associates and proposal team helping to ensure the client’s needs are met with world class service and satisfaction while driving new business initiatives to develop and enhance relationships in our Institutional and Sub advisory businesses. She joined the firm in February of 2023. Prior to that, Ms. Burke spent fifteen years at Putnam Investments as Director of Client Service managing day-to-day oversight of their Japanese and North American clients, and before that, two years as an Account Executive and Proposal Writer at Fidelity Investments in their institutional division.

Timothy Strakosch

Investor Relations

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Mr. Strakosch is responsible for business development and relationship management of the firm’s Public Fund and Taft-Hartley clients. He joined the firm in 2023 from AllianceBernstein where he was a vice president in the Institutional Client Group with responsibility for Public Fund and Taft-Hartley clients throughout North America. Previously, he was at Putnam Investments responsible for marketing Putnam Investment solutions to Financial Advisors at the wire house firms. Mr. Strakosch is a member of the Leadership Advisory Council at The Cristo Rey Boston High School and a team captain for the Pan-Mass Challenge. He serves on the Gold Leadership Council at Boston College and is a Class Agent at The Belmont Hill School.

Connor Watson, CFA

Relationship Manager

Mr. Watson earned a B.A. degree in economics from the College of the Holy Cross. He holds FINRA Series 3, 7, and 63 licenses, and the Chartered Financial Analyst® designation. He began his career in the industry in 2012.

Mr. Watson is responsible for relationship management and business development for the firm’s Public Fund and Taft-Hartley clients across the U.S. He joined Boston Partners after nine years at BNY Mellon Investment Management where he was a Vice President in the North American Distribution group with responsibility for multi-employer, public and other clients. In prior roles, Mr. Watson was with The Boston Company Asset Management as a Client Service Analyst, and he started his career at State Street Global Services.

Jacqueline Kelliher

Relationship Manager

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Ms. Kelliher is a member of the Investor Relations team and joined the firm in March 2023. In this capacity, Ms. Kelliher has business development and relationship management responsibilities of the firm’s financial intermediary relationships. Prior to this, Ms. Kelliher was a Director of Platform Distribution at John Hancock Investment Management. In this role she supported the Investment Research and Due Diligence efforts of the gatekeeper and professional buyer clientele within broker-dealer platforms and financial institutions. Additionally, she managed a team of internal sales professionals supporting the Broker-Dealer/Platform and DCIO channels. Before that, Ms. Kelliher held various sales roles across channels including RIAs, Family Offices, and Bank/Trusts.

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