LaBella explained that investors would typically utilize a low volatility and high dividend methodology to generate income, preserve capital and supplement traditional fixed-income exposure.
The strategy could act as an alternative to traditional yield-generation investments, provide a steady stream of income from quality stocks and help manager portfolio risks.
The funds may help preserve capital as the low volatility focus may help the ETFs outperform over the long term due to lower drawdowns during periods of increased volatility. The low volatility factor also allows investors to hedge against uncertainty, such as geopolitical risks and shifting monetary or fiscal policies.
Lastly, the low vol/dividend strategy can act as an alternative to fixed-income assets as the three-decade long bull rally in bonds comes to an end. Money managers may find it harder to hit the required 60/40 stock/bond returns of yesteryear, but a low volatility and high dividend strategy may help fill in the gap.
“Low volatility and dividends help address the shift in portfolio risk,” LaBella said.