From here, the experiment is simple: Every month, I took the lower half of the S&P500 stocks by beta and computed their average return. The table below summarizes the results:
*Risk is defined as the standard deviation of excess returns. The data in the table is annualized from monthly returns.
Keep in mind that this experiment did not benefit from the full process of actually constructing a min vol portfolio. But it was able to demonstrate that over the 52-year period, low-beta stocks performed better than the overall market when it came to their level of return per unit of risk. (Remember that this was over a period when the market was up, on average, about 5.2% over the risk-free rate.)
It also helps to demonstrate why investors can view min vol as a core, long-term holding, rather than seeing it solely as a means of “downside protection” when overall markets are performing poorly.
Daniel Morillo, PhD, is the Global Head of Investment Research for iShares.