Frequently the question comes up if low-volatility is ‘expensive’, measured by multiples such as P/E and P/B ratios. The investors asking this are sometimes worried about the expected performance of low-volatility in such an environment. In this note, we address this question using an extended 82-year sample period for the US stock market.
We find that a generic lowvolatility strategy sometimes exhibits value (1990s) and sometimes growth (1930s) characteristics. An enhanced low-volatility strategy, which includes valuation and sentiment factors, yields a much better return/risk ratio than a generic low-volatility strategy and is necessary to achieve superior long-term returns.
Recently, the P/B ratio of a generic low-volatility strategy has become relatively high again. Historically, generic low-volatility underperforms the market in such an environment, but proves effective to lower the risk. An enhanced low-volatility strategy is particularly helpful when generic low-volatility is expensive and improves the return of a generic low-volatility strategy by up to 6% per year.
This report is not available for users from countries where the offering of foreign financial services is not permitted, such as US citizens and residents.
I agree to the Robeco Disclaimer and the collection and use of my personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy Policy, including for the purpose of direct marketing of Robeco products or services. Your data will be treated with utmost care and will not be passed on to third parties.
BY CLICKING ON “I AGREE”, I DECLARE I AM A WHOLESALE CLIENT AS DEFINED IN THE CORPORATIONS ACT 2001.
What is a Wholesale Client?
A person or entity is a “wholesale client” if they satisfy the requirements of section 761G of the Corporations Act.
This commonly includes a person or entity: