Are mutual funds on the other side of the low volatility trade?

Are mutual funds on the other side of the low volatility trade?

03-04-2019 | From the field

This new research helps to explain the existence of the low volatility anomaly. The paper1 examines holdings in very risky ‘lottery’ stocks of actively managed U.S. equity funds.

  • David Blitz
    Chief Researcher

Funds that hold more lottery stocks are found to be smaller, younger and poor recent performers, which are characteristics typically associated with their incentives to attract capital. Funds with more retail clientele and lower managerial ownership also hold more lottery stocks. Poorly performing funds tend to increase their lottery holdings towards the end of the year.

Consistent with the existence of the low volatility anomaly, funds with higher lottery holdings are found to significantly underperform their peers, by 4.8% annually. The authors conclude that funds holding lottery stocks aim to gather assets by catering to investor preferences and engaging in risk-shifting behavior. We also like that the results help to explain why the low volatility anomaly is there in the first place, and who is on the other side of this trade.

1Agarwal, Liang & Wen, “Why Do Mutual Funds Hold Lottery Stocks”, working paper, 2018.

Stay informed on our latest insights with monthly mail updates
Stay informed on our latest insights with monthly mail updates
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.

Read all articles
Subjects related to this article are:


The information contained in the website is solely intended for professional investors. Some funds shown on this website fall outside the scope of the Dutch Act on the Financial Supervision (Wet op het financieel toezicht) and therefore do not (need to) have a license from the Authority for the Financial Markets (AFM).

The funds shown on this website may not be available in your country. Please select your country website (top right corner) to view the products that are available in your country.

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.

By clicking Proceed I confirm that I am a professional investor and that I have read, understood and accept the terms of use for this website.