The low-volatility strategist in a nutshell

2. Why low-volatility strategies are so neglected?

While low volatility strategies have been shown to provide attractive risk-adjusted returns over the long term, they have historically been somewhat neglected by investors. Here are some reasons why:

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• They are often viewed as conservative or defensive, which can be less appealing to investors who are seeking higher returns. In other words, some investors may prioritize potential returns over risk management, which may lead to overlook them.

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• They may underperform in certain market environments, such as during periods of strong market growth when more aggressive strategies may outperform. This is also why some investors dislike these strategies, especially if they are looking for short-term gains.

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• Some investors may not fully understand how they work or may be concerned about the concentration of investments in certain sectors or stocks that are often found in these strategies. This lack of understanding can lead investors to overlook them.

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• There may be a bias towards active management among investors, and low volatility strategies are often associated with passive investment approaches. This bias may lead investors to overlook low volatility strategies in favour of more actively managed portfolios.

However, despite these reasons for neglect, low volatility strategies have gained in popularity in recent years as investors have become more aware of the benefits of risk management and the potential benefits of these strategies for long-term portfolio performance. Additionally, the recent market volatility due to events like the COVID-19 pandemic and Ukraine invasion may have prompted some investors to revaluate their investment strategies and consider low volatility alternatives.

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Are you fascinated by low-volatility investment strategies? Stay tuned.

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