Factor-based investing is en vogue and some factors, such as size and value, have been around for quite some time, while others like momentum are fairly new. I do use momentum in a slice of my VP and am comfortable with it as I understand how it works and what the pros and cons are.
I'm seeing lots of discussions about low volatility and there are quite a few ETFs out there. There are even low volatility small cap ETFs like XSLV, combining size and volatility factors. I'm trying to understand the what/why/how of low volatility and whether it's worth consideration for my VP. So far the only rationale I found/understood is the lower level of drops compared to the broad market index. I can understand that psychologically it's easier to stomach, however the same low volatility will ensure your stocks will not jump as high as the broad market which naturally will result in lower returns.
Does anyone here use low volatility and/or can explain the hidden beauty of it that I can't see?
Low volatility
Moderator: Global Moderator
Low volatility
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
- Talmud
- Talmud
Re: Low volatility
I know this doesn't answer your question, but right now the VIX is below 12, when it gets below 12 it's a bad sign for future volatility, since Feb 2018. It gets crushed to 12, then pops back up. It's kind of a pattern. Who knows if it goes off again?