Dow Jones U.S. Thematic Market Neutral Low Beta Index (CAD-hedged)

By: AGFiQ • October 7, 2019
The Dow Jones U.S. Thematic Market Neutral Low Beta Index (CAD-hedged) (“Index”) is designed to measure the performance of a long/short strategy utilizing long positions in low beta companies and short positions in high beta companies. Beta is calculated using weekly returns for the previous 52 weeks. The index is calculated using long and short indices as its basis. It is designed to be market- and sector-neutral. Here’s what you can expect from the index:

An Effective Hedge Against Equity Market Volatility

Since September 2011 the S&P 500 has undergone eight periods where returns fell by more than 5%. In each of these drawdowns the Index was able to provide some level of positive return.

Market Neutral Strategy During S&P 500 Index Drawdown Periods
Source: Morningstar Research Inc. as at July 31, 2018. Market Neutral Index represented by the DJ US Thematic Mkt Neutral Anti-Beta TR USD and US Equity Index represented by S&P 500 TR USD. For illustrative purposes only, on cannot invest directly in an index.

Ways You Can Implement This Strategy Based Client Need

Need: Alpha Generation

Blending market neutral factors with traditional equity has the potential to provide attractive risk-adjusted returns. This can be achieved either through a strategic long-term view or a more tactical, opportunistic strategy to combat a market downturn.

Annualized Volatility1 Annualized Return1 Sharpe Ratios1
Dow Jones Market Neutral Anti-Beta Thematic Index (CAD-Hedged) 12.94% 1.67% 0.08
S&P 500 Index (CAD) 11.86% 14.01% 1.15
25/75 Blend 7.15% 11.32% 1.46


Need: Diversification


May provide low or negative correlation to the overall market. An allocation can potential aid in asset allocation & portfolio risk reduction.

 

Correlation1 Annualized Volatility1 Beta1
Dow Jones Market Neutral Anti-Beta Thematic Index (CAD-Hedged) -0.68 12.34% -0.71
S&P 500 Index (CAD) 1.00 11.86% 1.00
25/75 Blend 0.95 7.15% 0.57
Source: Morningstar Research Inc. as at July 31, 2019

A Possible Replacement for Fixed Income Exposure

Ultimately, a market neutral strategy works best when incorporated into an existing portfolio strategy. Even a small allocation has the potential to reduce overall portfolio risk, smooth out the effects of volatility over-time while maintaining a healthy exposure to equity markets.
dowjones-risk-return-e-01.png
Source: Morningstar Research as of July 31, 2019. Past performance is not indicative of future returns. Index Risk/Return 09/01/2011 – 07/31/2019. One cannot invest directly in an index.
A market-neutral strategy has the potential to offer an effective hedge against equity volatility without restricting their exposure to the growth potential of the asset class.
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The Dow Jones U.S. Thematic Market Neutral Anti-Beta Index (CAD-Hedged) is a product of S&P Dow Jones Indices LLC or its affiliates ("SPDJI"), and has been licensed for use. Standard & Poor's® and S&P® are registered trademarks of Standard & Poor's Financial Services LLC ("S&P"); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"). The Dow Jones U.S. Thematic Market Neutral Anti-Beta Index (CAD-Hedged) is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P and their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such product(s) nor do they have any liability for any errors, omissions, or interruptions of the Dow Jones U.S. Thematic Market Neutral Anti-Beta Index (CAD-Hedged).

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

Performance returns presented are hypothetical and for illustrative purposes only. It does not represent actual performance of the index. Assumptions were made in the calculation of these returns including [list key assumptions made in formula-will get from Nimar]. Trading costs and other fees associated with the portfolios are not included and trading prices and frequency implicit in the hypothetical performance may differ from what may have actually been realized at the time given prevailing market conditions. This performance simulation is for illustrative purposes only and does not reflect actual past performance nor does it guarantee future performance. One cannot invest directly in an index

All information is in Canadian dollars. The performance presented is gross of fees and rates of return for greater than one year have been annualized. The indicated rates of return are the historical annual compounded total returns including changes in value and reinvestment of all dividends and do not take into account sales, redemptions, distributions or optional charges or income taxes payable by any investor that may have reduced returns.

Past performance is not necessarily a guide to future performance. The value of investments and income from them can fall and rise. Investments denominated in foreign currencies are subject to fluctuations in exchange rates, which may have an adverse effect on the value of the investments, sale proceeds and on income.
Unless otherwise specified all information is in Canadian dollars. Past performance is not necessarily a guide to future performance. The value of investments and income from them can fall and rise. Investments denominated in foreign currencies are subject to fluctuations in exchange rates, which may have an adverse effect on the value of the investments, sale proceeds and on income. Charts and graphs are provided for illustrative purposes only.

Unless otherwise specified all information is in Canadian dollars. Past performance is not necessarily a guide to future performance. The value of investments and income from them can fall and rise. Investments denominated in foreign currencies are subject to fluctuations in exchange rates, which may have an adverse effect on the value of the investments, sale proceeds and on income. Charts and graphs are provided for illustrative purposes only.

 

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