Assets top $200 billion, up from $31 billion in 2006, as insurers lead the charge.
Stability is in. Witness managed-volatility funds’ climb to new heights: $200 billion in assets.
A new report from Strategic Insight revealed that over the past seven years, managed-volatility strategies — investment tactics that aim to moderate market highs and lows to achieve more predictable returns — are picking up in popularity.
At the end of 2006, there were $30.9 billion in funds that use managed-volatility strategies. That rose to $153.9 billion by the end of last year and to $200.1 billion at the end of the second quarter.
Insurance companies can take much of the credit for the proliferation of managed-volatility strategies. Assets in variable annuities accounted for 64% of managed-volatility assets in the second quarter of this year, adding up to $127.9 billion.
Carriers lead the charge in managed-volatility strategies after having learned some harsh lessons in 2008. Back then, the biggest sellers of variable annuities with living benefits suddenly found themselves in the money when clients’ VA accounts plummeted in value. Guaranteed living benefits entitle clients to withdrawals for life, and insurers realized they were on the hook for benefits that far outweighed the value of the account.
In turn, this led insurers to add investment options that aren’t subject to the same volatility of the past: Clients’ accounts wouldn’t go up by as much as they did in the past, but they wouldn’t be subject to the same deep dives they took in 2008, either. Carriers tend to use tail-risk managed funds, which respond to sharp market downturns, according to Strategic Insight.
Out of a total of 409 funds, 180 of those funds are underlying options in variable annuities — 151 of which are tail-risk managed funds.
Volatility management also is picking up steam among mutual funds, which hold $72.3 billion in assets in these strategies and account for 36% of assets in managed-volatility strategies. Low-volatility strategies, which strive to reduce equity volatility within a portfolio over the long run, are popular among mutual funds, according to Strategic Insight.
There are 229 mutual funds that use managed-volatility tactics. The development of alternative investment styles, such as risk parity, is helping to fuel the growth of these strategies, according to the report.
