Is Low-Vol Anomaly really explained by Value factor?

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Re: Is Low-Vol Anomaly really explained by Value factor?

Post by winguy » Sat May 18, 2013 1:46 am

How is minimum volatility doing at a time like this (new highs)?

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Re: Is Low-Vol Anomaly really explained by Value factor?

Post by Roy » Sat May 18, 2013 6:24 am


Depends on which ETFs you use but the returns (below) have been good—outpacing the broad market—and volatility is low, since their inception 1-2 years ago, and well-advertised. So, huge inflows. I think they target the lowest volatility 100 or so stocks in their chosen index. And there may be differences between minimum volatility and low volatility, but most discussions conflate them.

SPLV (Large Value) 18.90%
XSLV (Small Blend) 9.87% (3 months old)
EELV (Diversified Emerging Mkts) 3.36%
IDLV (Foreign Large Value) 11.46%

So, they are benefitting from great timing (in the wake of the last Bear), novelty, reasonable cost, research support, and who doesn't like the promise of Low Volatility without surrendering return (they are outpacing the broad market, and in some cases, the Vanguard equivalent funds, for example)?

But they are massively tilted towards Utilities, Consumer Defensibles, etc., equivalently light elsewhere, and may not be as effective over full market cycles, and when that happens a lemmings-like flight may occur. But we'll see.

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