Quality versus Low Volatility ETFs

SUMMARY

• Quality and low volatility stocks provide substantially different exposures
• Neither has outperformed the stock market, but both were less volatile
• Low volatility stocks have done poorly in recent years

INTRODUCTION

If you believe that the economy is entering a recession and can only invest in equities, what stocks should you select?

Well, first we should probably acknowledge that we are terrible at predicting recessions, and even measuring them in hindsight, so whatever strategy we come up with to select stocks bears a significant risk of backfiring.

However, ignoring this unpleasant fact, then most investors would likely go for quality or low volatility stocks when having a negative economic outlook. Given the COVID-19 crisis in 2020 and the bear market in 2022, it is a good time to reflect on how well either strategy has performed.

In this research article, we will compare quality versus low volatility ETFs.

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