Low-volatility equity strategies have gained a lot of attention in the last two years, with proponents claiming that they can deliver market level returns for below market level risk. We have seen significant interest from our clients worldwide and the volume of new product launches from asset managers has been remarkable.
While the concept is worth investigating there are potential hazards along the path from the initial idea to final implementation. There is a very wide range of strategies to consider and Smart Beta investments are a new avenue for many investors. We advocate Smart Beta investments and, in our view, low-volatility equity can be smart – but it is essential to navigate the potential pitfalls highlighted in this paper.