Read more: Why it’s time to revisit low-volatility strategies
Shares of utilities, consumer goods, and real estate companies frequently benefit from this bias because they are less susceptible to economic highs and lows.
Data from FactSet Research shows the largest low-volatility fund, the iShares MSCI Min Vol USA ETF, has amassed more than US$1 billion in assets over the past month. Concerns over a more aggressive Federal Reserve tightening of monetary policy have driven those inflows, which place the fund among the most popular U.S. equity ETFs. The S&P has lost 21% of its value this year, thanks in part to its recent 5% decline.
In the years that followed the financial crisis of 2007–2009, low-volatility funds sprang up and expanded rapidly. But the start of the pandemic saw an end to that trend; the funds fell precipitously along with the market’s widespread selloff, casting doubt on their effectiveness as havens for investors.
Low-volatility funds didn’t participate even when the markets started their frantic rebound. That was led by stocks in industries like e-commerce, which are typically less represented in low-volatility funds and more subject to market swings.
