Get Paid to Avoid Volatility

A potent combination in the world of smart beta exchange traded funds has been the marriage of the low volatility factor and dividends. That combination can be accessed via the Legg Mason Low-Volatility High-Dividend ETF (NASDAQ: LVHD), among other funds.

This type of strategy has proven to help investors capture growing markets while limiting drawdowns during periods of increased volatility to generate improved risk-adjusted returns over the long haul.

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.

“Not only has the ETF outperformed the index, but it has also fared better during periods of declines. The ETF’s beta, for example, is 0.52, compared with 1 for the market index. A beta of less than 1 means that a security is theoretically less volatile than the market,” reports Philip Van Doorn for MarketWatch.