any big issue with going 30-50% low volatility funds?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
lomarica01
Posts: 155
Joined: Sun Jul 05, 2015 10:57 am

any big issue with going 30-50% low volatility funds?

Post by lomarica01 » Fri Feb 14, 2020 12:15 pm

I have to do a major shuffle in my State of California 401k/457 program due to changes the program is making. There is an option to invest in a schwab account that is still all within the 401k/457 program. I already do this but plan on moving much more into schwab and investing it in low volatility etf funds.

Just wondering if there is anything big I am missing. My goal is still to have some upside growth but with more downside protection. I already have a vanguard global low vol fund and an international low vol fund.

Funds that look good so far include any others I should consider?
splv us large blend
usmv us large blend
lglv us large blend
smlv us mid value
xslv us small value

So when this is all done I could easily be between 30-50% in low vol funds of the total equity portion of my total investments. My overall AA will still be about 55/45 equity/fixed so that part is not changing

thanks for any advice

User avatar
Wiggums
Posts: 2741
Joined: Thu Jan 31, 2019 8:02 am

Re: any big issue with going 30-50% low volatility funds?

Post by Wiggums » Fri Feb 14, 2020 12:32 pm

I’d suggest that you update your post with the fund names.

snailderby
Posts: 805
Joined: Thu Jul 26, 2018 11:30 am

Re: any big issue with going 30-50% low volatility funds?

Post by snailderby » Fri Feb 14, 2020 12:42 pm

A couple thoughts, in no particular order:

1. Minimum variance is not the same thing as low volatility. See https://www.indexologyblog.com/2019/05/ ... -the-same/ and https://www.factorresearch.com/research ... volatility.

2. All of the funds that you listed -- except one -- have large sector biases, with Financials/Real Estate comprising anywhere from 38% of SPLV to 69% of XSLV.

3. My personal view is that funds like USMV or VFMV are reasonable options for those who are willing to give up some returns in exchange for lower volatility. Another alternative, of course, is to increase one's bond allocation.

aristotelian
Posts: 6822
Joined: Wed Jan 11, 2017 8:05 pm

Re: any big issue with going 30-50% low volatility funds?

Post by aristotelian » Fri Feb 14, 2020 1:52 pm

snailderby wrote:
Fri Feb 14, 2020 12:42 pm
3. My personal view is that funds like USMV or VFMV are reasonable options for those who are willing to give up some returns in exchange for lower volatility. Another alternative, of course, is to increase one's bond allocation.
The big attraction of the low volatility factor is that you do not give up as much return relative to the lower volatility. In fact, since 2014, LGLV and USMV have both straight up outperformed VOO. Nobody knows whether the anomaly will persist but at the very least it is false to say that it is necessarily a tradeoff between return and volatility because that has not been the case. The risk-adjusted comparison is also favorable compared to total stock + bonds (although I would never suggest eliminating bonds).

snailderby
Posts: 805
Joined: Thu Jul 26, 2018 11:30 am

Re: any big issue with going 30-50% low volatility funds?

Post by snailderby » Fri Feb 14, 2020 3:30 pm

aristotelian wrote:
Fri Feb 14, 2020 1:52 pm
snailderby wrote:
Fri Feb 14, 2020 12:42 pm
3. My personal view is that funds like USMV or VFMV are reasonable options for those who are willing to give up some returns in exchange for lower volatility. Another alternative, of course, is to increase one's bond allocation.
The big attraction of the low volatility factor is that you do not give up as much return relative to the lower volatility. In fact, since 2014, LGLV and USMV have both straight up outperformed VOO. Nobody knows whether the anomaly will persist but at the very least it is false to say that it is necessarily a tradeoff between return and volatility because that has not been the case. The risk-adjusted comparison is also favorable compared to total stock + bonds (although I would never suggest eliminating bonds).
In terms of past results, absolutely; low volatility has been a rare example of a situation where you could have your cake and eat it too. Going forward, I suspect low volatility will continue to be less volatile than the TSM. I have no idea whether it will also continue to have equivalent or better returns than the TSM.

aristotelian
Posts: 6822
Joined: Wed Jan 11, 2017 8:05 pm

Re: any big issue with going 30-50% low volatility funds?

Post by aristotelian » Fri Feb 14, 2020 3:36 pm

snailderby wrote:
Fri Feb 14, 2020 3:30 pm
aristotelian wrote:
Fri Feb 14, 2020 1:52 pm
The big attraction of the low volatility factor is that you do not give up as much return relative to the lower volatility. In fact, since 2014, LGLV and USMV have both straight up outperformed VOO. Nobody knows whether the anomaly will persist but at the very least it is false to say that it is necessarily a tradeoff between return and volatility because that has not been the case. The risk-adjusted comparison is also favorable compared to total stock + bonds (although I would never suggest eliminating bonds).
In terms of past results, absolutely; low volatility has been a rare example of a situation where you could have your cake and eat it too. Going forward, I suspect low volatility will continue to be less volatile than the TSM. Whether it will also continue to have equivalent or better returns than the TSM is anyone's guess.
Agreed. I'm not making any predictions.

ochotona
Posts: 84
Joined: Thu Jan 29, 2015 2:08 pm
Location: Houston, TX
Contact:

Re: any big issue with going 30-50% low volatility funds?

Post by ochotona » Fri Feb 14, 2020 4:10 pm

I use the global low-vol ETF ACWV for my wife's IRAs, it works as advertised. I've at times wondered if I shouldn't use it for my own accounts, but betting all on one style or factor seems ill-advised.
Peter W., MBA, CRPC

Post Reply