While it is not yet resolved whether the low-volatility and low-beta anomalies can be fully explained by exposures to other well-known factors, their popularity certainly has changed the valuation metrics of low-volatility stocks. At the very least, this should raise a flag of caution for investors who have been enticed by the historical data.
Low-vol strategies have attracted a lot of attention, in part because they portend to offer investors a free lunch – higher returns with lower volatility. But they carry hidden risks that every investor must understand.
Given the heightened interest in dividend strategies, I’ll take a look at how some of the leading providers of actively managed dividend-based strategies have performed.