100 000 Securities
From a selection of 100,000 stocks, the 2,000 largest companies are selected once a year based on the market capitalization, which constitutes the investable universe.
2 000 Securities
Based on the defined universe, 400 stocks are filtered down to the lowest volatility using a quantitative method.
400 Stocks with the lowest Volatility
Based on the 400 securities, a portfolio optimization takes place and between 50 and 100 securities with the lowest combined volatility constitute the final portfolio.
The Portfolio with the lowest volatility
This results in an active fund that has high liquidity, high diversification, and low risk.
How do we use mathematics?
- Volatility: Is a risk measure that measures the stock’s standard deviation. That is, you measure how much a share price moves up or down in relation to the average value. The lower the volatility of an individual stock or portfolio as a whole, the lower the risk of major negative changes in value.
- Optimization: A quantitative process for finding an optimal portfolio, which is the portfolio with the lowest combined volatility / lowest risk. This is done with an optimizer and covariance matrix.
- Covariance: Is a measure of the variation between two stocks. If two shares have low variation, this means that the share price does not follow the same or opposite pattern. In this case, we want as little covariation as possible between the shares included in the portfolio to minimize risk but still have a high potential return.
- Diversification: This is a result of choosing many companies that are active in different industries and have little covariation. A larger number of shares in the portfolio with different characteristics are therefore two important parts of the risk diversification.
Below are examples of quality companies that could be included in our portfolio. The characteristics of what these companies have in common are that they are some of the world’s largest companies that have been active for a long time and proved to be stable during many business cycles.
- Founded: 1894
- Market Cap: approx $35 billion
- Founded: 1891
- Market Cap: approx $24 billion
McCormick & Company
- Founded: 1889
- Market Cap: approx $23 billion
- Founded: 1892
- Market Cap: approx $230 billion
- Founded: 1889
- Market Cap: approx $68 billion
- Founded: 1907
- Market Cap: approx $186 billion