Use of Managed Volatility Funds Growing

SI’s newest in-depth research report, “Managed Volatility: Shifts in a Growing Market,” reveals a rise in managed volatility assets from $30.9 billion at the end of 2006 to $360.9 billion in June 2014, an annualized growth rate of 36%.

“We attribute the growth of managed volatility to the effects of the financial crisis” says Tamiko Toland, managing director of Retirement Income Solutions at Strategic Insight, an Asset International company. “However, given the strength of asset growth and the breadth and depth of offerings, managed volatility is evolving into an important investment category.”

Toland told PLANSPONSOR that SI believes managed volatility funds have the potential to grow significantly in the retirement space. “They represent a new risk management tool that does not constitute insurance yet may help to buoy against rocky markets. There are many different styles and ways of composing these strategies to meet the needs of individual clients.”

In the defined contribution (DC) plan space, Strategic Insight is aware of a series of target-date funds that AllianceBernstein offers that have a dedicated managed volatility sleeve within them, according to Toland. “There are many ways that one could implement managed volatility strategies, however,” she notes.

With $260.8 billion in Q214, variable annuity (VA) assets constituted 72% of managed volatility funds. Mutual funds amounted to $100.1 billion, or 28%. By contrast, there are many more mutual funds, a total of 293, compared with 200 VA funds. The widespread use of managed volatility funds in association with VA guarantees accounts for their rapid growth there, but the trend is also catching on in the mutual fund space, SI said.

Strategic Insight splits managed volatility into two categories: tail risk managed and low volatility. The former includes a population of 258 funds and $265.4 billion in assets and the latter has 235 funds and $95.5 billion in assets. Generally speaking, tail risk managed funds are strongly represented among VA funds—in both assets and number of funds, while mutual funds have a great presence with low volatility funds.

Managed volatility funds from Canada, Australia and Europe are also featured in SI’s study. Exhibits track managed volatility assets by country/region and provide lists of managed volatility funds from each country/region.

The new research from Strategic Insight has identified nearly 500 funds from more than 100 different advisers. With so many players, there are a wide variety of approaches, all classified and identified within the report. “This report presents unique analysis of the managed volatility opportunity, from managers to investment styles,” Toland comments.

More information about the report, including the executive summary and fact sheet, is here.