Volatility in LTGG: a feature or a bug?

As with any investment, your capital is at risk.

Is volatility a price worth paying for long-term investors? Investment manager Gemma Barkhuizen does the math to determine whether investors in the Long Term Global Growth (LTGG) Strategy should fear volatility or embrace it.

She demonstrates that volatility, particularly downside volatility, is an inherent characteristic of the outlier stocks that drive LTGG's success and cannot be divorced from Outlier Capture. That is why the stocks that deliver exceptional returns are also among the most volatile.

Barkhuizen highlights that the strategy’s top performers – Amazon, Tesla, and NVIDIA – have each experienced significant drawdowns during their holding periods. Yet, she argues, it is precisely this volatility that allows the investment strategy to capture outlier returns and achieve superior long-term growth.

Identifying and holding these outlier stocks in substantial size maximises their impact on the portfolio. This approach has seen LTGG outperform the MSCI ACWI Index by a significant margin over the past two decades. And deliver materially greater compounded wealth for its clients.

However, this success comes with a cost: the volatility drag. Since inception, LTGG's arithmetic average annual return has been 17.5%, but the compounded capital growth rate (CAGR) is 13%, reflecting a volatility drag of 4.5% per annum.

After demonstrating that volatility reduction for its own sake would be counterproductive, Barkhuizen turns to what the strategy does to mitigate the possibility that volatility will lead to permanent capital impairment.

Volatility comes with a cost and one that should not be taken lightly. Understanding and managing the trade-offs between volatility and outperformance gives the strategy the best opportunity to capture superior returns.

Read the full insights paper to explore how volatility plays a crucial role in LTGG's investment strategy and why it should be viewed as a feature of the strategy rather than a bug.

Past performance

Annual past performance to September 30 each year (net%)

Annualised returns to 30 September 2024 (net%)

Source: Revolution, MSCI. USD. Returns have been calculated by reducing the gross return by the highest annual management fee for the composite. LTGG composite is more concentrated than MSCI ACWI Index.

Past performance is not a guide to future returns.

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