“Or does this mean that eventually the spread will close in favor of risk takers? The market will provide the answer in the months to follow,” he added. “But for now, conservative investors are profiting at the expense of risk takers.”
One tenet of modern financial theory is that investors are rewarded for taking on more risk with higher returns. Volatility measures the tendency of an asset to jump around in price, and is often used as a proxy for risk.
However, several academic studies have found that low-volatility stocks actually perform better than “riskier” companies. Risk-adjusted performance makes low-volatility strategies look even better. [Comparing the Two Largest Low-Volatility ETFs]
Investors seem to be noticing. The iShares MSCI USA Minimum Volatility ETF (NYSEArca: USMV) is one of the best-selling funds this year, gathering $2.3 billion of inflows. It now holds about $3.3 billion in assets under management. The ETF is up 15.2% year to date.
PowerShares S&P 500 Low Volatility Portfolio
