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Stephen Deschenes

Director of Client Research, Capital Group

Masterclass 8: Asymmetric Risk: A Deep Dive on Risk for Active Equity Managers to Enhance Outcomes

In some ways, asymmetric risk or asymmetric return is a goal of every investment decision - - can I participate in the upside of an investment while protecting on the downside?  

Some of the original Ben Graham value analysis was intended to help achieve this contour of outcomes in security selection and this research extends that concept to active mutual fund manager selection. While passive or index strategies are by definition perfectly symmetrical - -  anchored in full market replication with 100% up capture and 100% down capture, it is possible to find active managers who have consistently maintained an asymmetric risk/return result with higher upside and/or lower downside capture. This research examines and highlights some of these risk metrics in manager selection and the potential benefits of selecting managers who are more risk aware and downside resilient in their approach. This may be particularly valuable as we are currently in a market with PE and Buffet indicator levels not seen since 1929 and 1999. An interesting fact from the study also shows that active management has historically added more value at both very low and very high PE levels. Also, while valuable for all investors in enhancing outcomes, this risk centric approach may add even more value for near or current retirees who are planning withdrawals from their portfolio, or for those HNW investors with greater wealth that may value capital preservation along with growth of capital.


Stephen L. Deschenes is a director of client research at Capital Group, home of American Funds. He has 28 years of investment industry experience and has been with Capital Group for nine years. Earlier in his career at Capital, he was a client analytics director, a senior product development manager investment services, and a senior business manager of defined contribution. Previously, he was the general manager for the retirement income solutions division at Sun Life Financial. Before that, he was chief marketing officer for retirement income at MassMutual Financial Group, and product development and marketing lead for defined contribution at Fidelity Investments. Additionally, Mr. Deschenes is a founder of the online financial advice site mPower (now part of Morningstar), which pioneered investment advice in 401(k) plan administration. He earned a bachelor’s degree magna cum laude in psychology and social relations from Harvard University. He is based in Los Angeles.