Built to endure: UBS Redefines Volatility Control with Purpose

Some firms chase trends. UBS builds frameworks that endure. That mindset has shaped how UBS approaches the complex world of index design—grounded in research, tested through market cycles, and developed with long-term outcomes in mind.

This philosophy is clearly reflected in UBS’s collaboration with Engle Volatility Consulting LLC (“Engle Consulting”), the research principal of which is Nobel Laureate Dr. Robert F. Engle, on the volatility control mechanism for a series of indices. The series uses rules-based systematic investment strategies that aim to provide enhanced exposure to various underlying assets using a novel forward-looking intraday volatility forecasting methodology developed with Dr. Engle, whose pioneering research on volatility earned him the 2003 Nobel Prize in Economics.

“We don’t design indices for headlines. We design for the next decade,” says Ghali El-Boukfaoui, Head of Insurance Sales at UBS. “Our clients rely on these indices to perform through various market conditions, not just in backtests but in real-world conditions.”

Designed to rethink how volatility is measured and managed, the Engle series aims to offer more consistent performance while keeping the story simple enough for advisors to understand and explain. With the full strength of UBS behind it, the volatility control mechanism developed with Professor Engle represents more than a new methodology. It’s a signal of UBS’s broader commitment to innovation and client-first design.

“Risk is a central feature of financial markets, and volatility gives you a way of quantifying that risk,” says Dr. Engle. “By quantifying volatility, we enable individuals, money managers, pension funds to measure the kind of risk they’re taking.”

A Philosophy Built Around the Advisor and Client

El-Boukfaoui emphasizes that index design at UBS starts not with market trends or performance modeling, but with the client in mind.

“Our philosophy is centered on the end customer,” he says. “We ask: what are the stated objectives of the index, and can we deliver on those objectives through various market conditions?”

While some might chase short-term sales or flashy backtests, UBS takes the long view. With many indices being embedded in insurance products for 10 to 15 years, transparency, and credibility are non-negotiable.

“We don’t just put an index into the market and disappear,” El-Boukfaoui adds. “We’re in this for the long haul, constantly educating, updating, and standing behind our work.”

UBS’s integration across business units reinforces that accountability. Their wealth management division constantly shares feedback from the field, while their investment banking and asset management arms collaborate on research, structuring, and risk management.

UBS also works with a diverse mix of index providers across the broader market to design solutions that resonate with consumers and distribution at every level. This broad perspective gives them added insight into what’s working, what’s needed, and where innovation can drive value.

“The feedback loop is invaluable,” says Amy Zhou, Director at UBS. “We are constantly given feedback around some of the challenges with volatility target indices, from the field. Those feedbacks feed our product design process and guide our innovation effort.”

Smarter Volatility Control for a Changing Market

In today’s market environment, traditional volatility control mechanisms have shown their limitations. While they aim to smooth performance and manage downside risk, they often react too slowly, missing the upside when markets rally and de-risking too late during downturns.

“Too many volatility-controlled indices get whipsawed by market cycles,” says El-Boukfaoui. “They don’t adjust fast enough, and they don’t leverage volatility as a strategic tool.”

That’s where the Engle Volatility Control Index Series offers a breakthrough. By leveraging Dr. Engle’s lifetime of research in volatility modeling and GARCH (Generalized Autoregressive Conditional Heteroskedasticity) models, UBS has created a more responsive, forward-looking approach to market risk. Dr. Engle’s influence is more than a name on the index. It’s a blueprint for smarter, faster, and more adaptive volatility control.

“If you’re  slow to adjust your volatility,” says Dr. Engle, “then you get the worst of both worlds—selling too late in downturns and re-entering too late in recoveries. The best models move quickly when conditions shift.”

This isn’t just theory. It’s an academically vetted, practically implemented solution. One that Dr. Engle actively helped shape.

“This was not a quick collaboration,” says Zhou. “It was a multi-year engagement. Dr. Engle came to our offices to work with us directly. The result is a volatility control mechanism that’s fundamentally different.”

“Over the past 5-6 years, we have witnessed significant innovation in the use of intraday data to enhance index reactivity. However, many people are unaware that most of these new indices still rely on models developed 15 years ago for the first generation of custom indices.” Added El-Boukfaoui, “Dr. Engle, a Nobel Prize winner for his work on volatility, has dedicated his career to studying volatility in financial markets. He has guided us in the proper use of his statistical models with the goal of achieving better predictability of volatility. This represents a fundamental shift from other volatility control models, and we are already seeing the benefits of this new methodology from a performance standpoint since the index series went live.”

Among its key strengths:

• Robust Forecasting Models: Drawing from decades of academic work, the model aims to capture granular intraday and overnight volatility patterns with more nuance and more academic robustness than other statistical models.

• Smarter Use of Volatility: Rather than treating volatility as a performance drag, the methodology identifies patterns where volatility can enhance returns, especially during calm, upward-trending markets.

• Faster Reaction to Market Conditions: The Engle methodology is implemented in an intraday framework when relevant, which allows indices to adjust more quickly to changes in market conditions.

The analogy that UBS uses compares the first generation volatility modeling prevalent in the market to trying to predict the weather without taking into account the current season or by only taking into consideration weather measurements from previous days. For successful “weather forecasting”, not only do you want to measure frequently but you also need to take into account what the weather usually looks like during similar periods in the past and how consistent are those weather patterns.

Simplicity on the Surface, Sophistication Beneath

One of the recurring themes from both UBS and its distribution partners is the need for simplicity. No matter how sophisticated an index is, it must be easy to explain and easy to trust.

“Advisors are the gatekeepers,” says Zhou who spends more time educating advisors and wholesalers on the UBS indices. “They want to offer what’s best for the client, but if the index is too complex to understand or explain, they’re going to fall back on benchmark indices and potentially miss out on indices that can provide further performance diversification and stability.”

To bridge that gap, UBS prioritizes clarity and simplicity in the story. “The performance and the philosophy both have to align,” she says. “If you can communicate what the index is doing in simple, benefit-oriented terms, you can win advisors’ confidence.”

This mindset extends to how UBS works with insurance carriers and distributors. Not only does UBS offer fully-developed index strategies, UBS also often consults with partners, ensuring alignment across objectives, timelines, and communication strategies.

Client-Centric Thinking

It’s in UBS’s DNA to approach index design with a client-centric mindset. “We ask ourselves: Is this in the best interest of the client?” says El-Boukfaoui. This ethos sets UBS apart in an increasingly crowded field of index providers. With market share in the fixed indexed annuity space growing rapidly, UBS is now among the top players by several industry measures.¹

And yet, they remain focused not on scale, but on quality.

“We build with care, and we partner with people who share our values,” says Zhou.

Innovation in Motion: UBS’s Path Forward

El-Boukfaoui and Zhou agree the future of UBS index innovation lies in what’s working: deeper academic partnerships, tighter collaboration with carriers, and refining investment strategies that can stand the test of time.

 “We want to keep building products with innovation,” El-Boukfaoui says. That means better tools, better outcomes, and better transparency for advisors and clients.”

UBS aims to be part of the conversation, whether with carriers seeking differentiation or IMOs building their next product. “We’re open to new partnerships,” Zhou says. “We’re not just another investment bank. We’re a long-term partner with a passion for building what lasts.” 

Find out more about Engle Volatility Control Index Series

To learn more, visit indices.ubs.com/engle.

1. Wink’s Index Intelligence Report, 2024. Schedule DB data as of Q4 2024.

This material is for distribution only under such circumstances as may be permitted by applicable law. It has not been prepared with regard to the specific investment objectives, financial situation or particular needs of any specific recipient. It is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments or to participate in any particular trading strategy. The recipient should not construe the contents of this material as legal, tax, accounting, regulatory, or other specialist or technical advice or services or investment advice or a personal recommendation. No representation or warranty, either express or implied, is provided in relation to the accuracy, completeness or reliability of the information contained herein, nor is it intended to be a complete statement or summary of the developments referred to in this material or a guarantee that the services described herein comply with all applicable laws, rules and regulations. It should not be regarded by recipients as a substitute for the exercise of their own judgment. In addition, UBS AG and its affiliates (“UBS”) makes no warranty or representation whatsoever, express or implied, as to the results to be obtained from the use of any index in the Engle Index Series described herein or the accuracy or completeness of any such index and its computation. UBS shall not bear any responsibility or liability, whether for negligence or otherwise, with respect to any errors or omissions in the indices or the methodologies for the indices, or the use and/or reference of an index by UBS or any other person in connection with a financial product. The Engle Index Series consists of indices that are owned and sponsored by UBS as well as indices that are owned and sponsored by a third-party index provider and incorporate the volatility control mechanism developed by UBS in collaboration with Engle Consulting, the research principal of which is Robert F. Engle. UBS is not involved in and has no obligation or liability in connection with the calculation, creation, administration or maintenance of such indices that are owned by a third-party index provider.

While volatility controls may result in less fluctuation in rates of return as compared to indices without volatility controls, they may also reduce the overall rate of return as compared to products not subject to volatility controls. Any opinions expressed in this material are subject to change without notice and may differ or be contrary to opinions expressed by other business areas or groups of UBS as a result of using different assumptions and criteria. UBS is under no obligation to update or keep current the information contained herein, and past performance is not necessarily indicative of future results. Neither UBS nor any of its directors, officers, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this material or reliance upon any information contained herein. Additional information may be made available upon request. Not all products or services described herein are available in all jurisdictions and clients should contact their local sales representative for further information and availability.

Engle Consulting is not an investment adviser, does not guarantee the accuracy and completeness of any index in the index series described herein or any data or methodology either included therein or upon which it is based. The indices are not sponsored, endorsed, sold or promoted by Engle Consulting or Robert F. Engle. Engle Consulting and Robert F. Engle do not make any representation or warranty, express or implied, to any financial institution, investor of or counterparties to any index or to any member of the public regarding the advisability of investing in securities generally or in any of the indices.