However, some are growing concerned that these low-volatility investment strategies may be overcrowded.
Andrew Lapthorne of Société Générale warns that earnings multiples on low-vol stocks are hovering around the top of their historical range and their price-to-book are trading at a premium to the broader market. For instance, SPLV has a 19.6 P/E and a 2.5 P/B and USMV has a 20.2 P/E and a 3.1% P/B, whereas the S&P 500 index shows a 17.6 P/E and a 2.4 P/B.
Additionally, Lapthorne points out that financial stocks are now the largest component of the lowest volatility quintile of the MSCI World Index, and these financial stocks could grow more volatile as the market heads into a period of greater interest rate uncertainty. Financials make up 32.9% of SPLV and 19.6 of USMV.
For more information on low-vol strategies, visit our low-volatility category.
Max Chen contributed to this article.