Risk Management Pays
Watch as Joseph Flaherty, Chief Investment Risk Officer, discusses why MFS risk management works.
Volatility is a positive thing for active management. Volatility leads to dispersion of performance, dispersion of performance creates opportunity. Having said that, volatility eats at return and so all else being equal for an average rate of return, the more volatile that return stream is, the lower the compound rate of return you actually experience.
So, it's important that we dampen volatility throughout the market cycle and that's where active management becomes very important. If you think about a passive approach you own the market. You own all segments of the market; expensive segments, highly volatile segments. An active manager has some discretion, some ability to take those parts of the markets where they think they are being compensated for the risk that they are bearing and not accept those areas of the market that are expensive or highly volatile or areas that they think are going to dampen the returns through time by introducing volatility that’s unnecessary to the process.
Title: Risk Management Pays
Abstract: Risk management is an integral part of our investment process and culture. Risk oversight comprises four principal layers: global research team insights; portfolio management process; risk management team oversight; and investment committee led by chief investment risk officer