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

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lomarica01
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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

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Wiggums
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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
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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
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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
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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
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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
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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

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

Post by Puretaxableindexer » Thu Feb 20, 2020 10:42 pm

Low Vol is a fad that will fade. Just look at all these low Vol funds and you'll see that investors pilling in makes them overvalued and more volatile, not less. It's like investors looking for yield and taking $ from bond funds and putting them in real estate, utilities or stock dividend funds thinking they are "bond like" because of their higher yields. Those mentioned are now overvalued as well.
Low Vol, momentum, Quality factor and other products to get more money under management and fees that go with it. Once they decline, people are out the door and the fund closes.

GaryA505
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Location: New Mexico

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

Post by GaryA505 » Thu Feb 20, 2020 11:48 pm

lomarica01 wrote:
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
I think you could do worse. If you set it up and stay the course it should do as well as any other strategy.
FWIW, I have a similar portfolio.

annu
Posts: 181
Joined: Mon Nov 04, 2019 7:55 pm

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

Post by annu » Fri Feb 21, 2020 2:18 am

I did a lot of analysis using portfolio visualizer, even though these funds do not have a lot of history, but for the time available, adding more bonds I saw close results.

Seeing simple index based approach, instead of some magic recipe, I felt better to invest in something I understood more, which is stocks and bonds. The amount I wanted to put in these low volatility funds, I did 50/50 total market and intermediate bond fund. And I can adjust if things go crazy, which was another benifit i felt, i could control.

There are some multifactor funds as well, they seem more data based, and more parameters, but still felt, relying to market to adjust and pick, is probably better then the investments houses.

As mentioned above, would add support for acwv, low cost and seem to do well. I still preferred vxus+bndx, but when I compared to other options, it stood out in cost and performance.

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