Volatile Markets Provide Opportunity for Defensive Investing, Russell Says

(August 17, 2011) — Russell Investments has found that the current performance of its Stability Indexes illustrate the historical benefit of investing defensively in increasingly challenging economic and market environments.

According to the firm, the Russell 3000 has seen more than a 7% advantage going toward its more defensive names as opposed to more cyclical or “dynamic” stocks.

“The introduction of these new indexes connects to a broader trend among institutional investors looking at a variety of new alternative index & investing approaches – not just seeking investment return, but in looking for outcome-oriented strategies to manage toward specific liabilities,” Abigail Huffman, director of research at Russell Investments, told aiCIO. “This is clearly a much more complicated and volatile investment world versus just three years ago – investors need to have continual evolution of tools to better help manage risk and reduce uncertainty.”

Huffman added: “In the current yo-yo market, where emotion drives investing amid unprecedented volatility, a more disciplined approach may be beneficial,” said Huffman. “While certainly no guarantee of what may happen in the future, our research shows that a defensive investment approach as reflected by the Russell 3000 Defensive Index has delivered higher returns and lower volatility over the past 20 years* and has shown less of an impact than the broad market as reflected by the Russell 3000 Index during falling markets. And, in fact, the defensive approach has performed particularly well in these recent volatile weeks.”

While the Russell 3000 Dynamic Index had slipped 0.89% so far this year through, its Russell 3000 Dynamic Index was down 8.2% in that same period, according to data from the firm.

During the month of August, the Russell 3000 Defensive Index outperformed the Russell 3000 broad market Index with a -5.69% return relative to a -8.13% return for the broad market index — a discrepancy fueled by the highly volatile energy, financial services and consumer discretionary sectors, according to a statement released by the firm.