Low Vol What Went Wrong?

2020 has been very challenging with sharp underperformance and dispersion across low volatility implementation. How can we explain performance and positioning?

We conducted an independent factor decomposition of 6 Smart Beta ETFs to highlight significant structural exposures across implementations.

Findings Summary

  • Most Low Vol ETFs perform as bad or worse than the S&P 500 during the volatile period
  • PLB Low Vol factor reflects Beta Compression and the subsequent sluggish recovery
  • ETFs implementation of the Low Vol factor was, in most cases, far from consensus
  • Exposure to mid/small-cap stocks (Size factor) hurts performance

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