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Finreon Multi Premia® Defensive - risk reduction plus return optimization

19.10.2016

Finreon complements the Multi Premia® product range with a defensive option

With the launch of the Finreon World Equity Multi Premia® Defensive (Pension) Fund on September 29th, 2016 Finreon adds a defensive option to its Multi Premia® product range. The Finreon Multi Premia® approach combines the risk reduction of a minimum variance portfolio with return optimization through systematic factor exposures. Investors receive an alternative to both traditional stock investments whith a tendency towards higher risks and bonds that barely yield any return in the current low interest rate environment.

With the launch of the Finreon World Equity Multi Premia® Defensive (Pension) Fund, Finreon offers investors the possibility to combine the concepts of minimum variance and of factor investing. This solution exhibits the defensive risk characteristics of a minimum variance solution while additionally collecting seven scientifically proven return sources (so called factor premia) next to the market beta. Such an approach enables a systematic optimization of the return.

To minimize the portfolio variance, classic minimum variance approaches – such as the MSCI World Minimum Volatility – weight individual securities in such a way that the volatility and the drawdowns can be reduced by about 25% compared to the MSCI World. So doing, conventional minimum variance approaches focus only on the reduction of the portfolio risk, whilst the return axis is not systematically optimized. This leads to a strong dependency on the low risk premium, which can result in a high tracking error and long underperformance phases, especially in bull market phases. 

This is where the Finreon Multi Premia® Defensive approach comes into play. In addition to the market beta and the low risk premium, the solution systematically collects six further, proven factor premia: Value (cheap stocks), Size (small stocks), Momentum (systematic trends), Residual Momentum (idiosyncratic trends), Reversal Premium (trend reversal) and Quality (profitable stocks). In the long run, all these premia show an outperformance against the market: Because of the factors' low correlations, the short-term fluctuation of different single factors can be countered through diversification. By combining these proven factor premia, the Multi Premia® approach strives for a robust long-term outperformance with significantly reduced relative drawdowns compared to a passive investment in the market or an investment in a single factor premium.

Lukas Plachel, product manager of the Finreon Multi Premia® investment solutions, explains: „Traditional multi-factor concepts mainly aim at improving the return potential of a strategy. In contrast, classic minimum variance strategies focus only on the optimization of the risk dimension. The Finreon Multi Premia® Defensive solution combines the advantages of both the multi-factor and minimum variance strategies in a unique way: The broad diversification along seven factors enables robust excess returns while the minimum variance optimization leads to a significant risk reduction on the individual securities level. Accordingly, the two proven concepts ideally complement each other through the concurrent optimization of both the return and the risk dimension.“

 

This graph illustrates the Finreon Multi Premia® Defensive approach: Through the combination of minimum variance optimization and systematic factor exposures, the risk can be reduced by about 25% compared to the MSCI World and at the same time, a robust expected outperformance can be generated.

The first available investment solution based on the Finreon Multi Premia® Defensive approach is the Finreon World Equity Multi Premia® Defensive (Pension) Fund. The fund invests in roughly 1000 of the largest stocks of the developed countries globally, excluding Switzerland. It is a Swiss fund that is US-withholding tax optimized and only open for professional pension funds (2nd pillar).

The Finreon World Equity Multi Premia® Defensive (Pension) is available in USD as well as in CHF-hedged. Shares of the USD-classes can be subscribed in USD and CHF. The following share classes are available:

USD share classes:

  • Finreon World Equity Multi Premia® Defensive (Pension) (USD) Class I0: ISIN: CH0337054313
  • Finreon World Equity Multi Premia® Defensive (Pension) (USD) Class I1: ISIN: CH0337054339
  • Finreon World Equity Multi Premia® Defensive (Pension) (USD) Class I2: ISIN: CH0337054354
  • Finreon World Equity Multi Premia® Defensive (Pension) (USD) Class V1: ISIN: CH0337054370
  • Finreon World Equity Multi Premia® Defensive (Pension) (USD) Class V2: ISIN: CH0337054396
  • Finreon World Equity Multi Premia® Defensive (Pension) (USD) Class D: ISIN: CH0337054412

CHF-hedged share classes:

  • Finreon World Equity Multi Premia® Defensive (Pension) (CHF-hedged) Class I0H: ISIN: CH0337054321
  • Finreon World Equity Multi Premia® Defensive (Pension) (CHF-hedged) Class I1H: ISIN: CH0337054347
  • Finreon World Equity Multi Premia® Defensive (Pension) (CHF-hedged) Class I2H: ISIN: CH0337054362
  • Finreon World Equity Multi Premia® Defensive (Pension) (CHF-hedged) Class V1H: ISIN: CH0337054388
  • Finreon World Equity Multi Premia® Defensive (Pension) (CHF-hedged) Class V2H: ISIN: CH0337054404
  • Finreon World Equity Multi Premia® Defensive (Pension) (CHF-hedged) Class DH: ISIN: CH0337054420

Within the fund Finreon acts as Investment Advisor for the portfolio construction, while Credit Suisse is responsible for the Investment Management.

For further information or questions, please do not hesitate to contact:

Simon T. Müller, Head of Business Development, Finreon AG (simon.mueller@finreon.ch, +41 71 230 08 10)

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