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Low-volatility anomaly among mutual funds

Low-volatility anomaly among mutual funds

27-03-2015 | From the field

A paper* examines whether the low-volatility anomaly, which has been extensively documented for global equity markets, is also visible in mutual fund returns.

  • David Blitz
    David
    Blitz
    Head Quantitative Equities Research

In order to address this question the paper sorts mutual funds in quintile portfolios based on their past beta, and finds that the quintile portfolio containing the least risky funds generates an alpha of 2.52% per annum. Thus, the low-volatility anomaly indeed appears to be present among mutual funds as well.

Frankly, we were a bit surprised by this result, given that the first funds dedicated to capturing the low-volatility anomaly were introduced only as recently as the mid-2000s (e.g. Robeco’s Conservative Equity funds). Thus, we wonder if perhaps the funds that are identified as low-beta in this study are really funds which systematically target low-volatility stocks, or actually funds which have a low beta for other reasons, such as investing in cash or bonds next to conventional equities. A further investigation of this issue would, in our view, be an interesting topic for follow-up research.

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From the field
From the field

Our researchers publish many whitepapers based on their own empirical studies; they also follow quantitative research done by others. Head of Quant Equities Research David Blitz comments on notable external papers.

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