“On balance, these two low-volatility portfolios offer what they advertise, which is less volatility than the broad market. Whether they are good investment choices is another matter entirely,” Prestbo writes.
“Mainly, at this point these funds shouldn’t be relied upon to turn those academic results into real money,” the index guru added. “Like growth and value funds, they appear to alternate their times to shine. When an investor decides to get in and get out will greatly affect his realized returns.”
USMV and SPLV, the low-volatility ETFs, both outperformed the S&P 500 by a slight margin in the first quarter. But what seems to draw skittish investors to these funds is the promise of a smoother ride with lower volatility, or price swings — not superior performance.
As Prestbo points out, depending on the market, low-volatility stocks may or may not outperform in any given year. Investors in low-volatility ETFs should also keep track of so-called risk-adjusted returns that factor in volatility.
“The evidence behind low-volatility investing is truly impressive. However, low-volatility strategies can underperform during bull markets,” says Morningstar ETF analyst Samuel Lee.
iShares MSCI USA Minimum Volatility
