Low-Vol Strategies Are Not the Same as Value, Profitability

Low-volatility strategies have different intended outcomes compared with value and profitability.

Daniel Sotiroff 29.11.2018
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One critique of defensive-equity (low-volatility) strategies is that they're repackaged versions of two known investment styles: value and profitability. That statement implies that defensive strategies are nothing new, and investors should forgo them in favor of others that explicitly target the value and profitability factors.

There is some truth to this statement, but context matters. Low-volatility strategies have had significant but inconsistent exposure to both value and profitability. Therefore, investors who want exposure to these factors are better off with a strategy that explicitly targets those types of stocks. Those who want to reduce risk should stick with defensive strategies but should not assume they're directly exposed to value, profitability, or both. 

Repackaged Factors?

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About Author

Daniel Sotiroff  Daniel Sotiroff is an Analyst, Passive Strategies Research, for Morningstar.

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