A decade ago, BNP Paribas Asset Management launched the global low volatility equity strategy after undertaking proprietary research into the characteristics of low risk stocks.
One of the key elements of the research was evidence that the least volatile stocks among every sector had a higher Sharpe ratio than those of the riskier stocks in their cohort. In other words, the low volatility anomaly was omnipresent: It was not just confined to those sectors typically viewed as less volatile such as utilities, consumer staples or healthcare.
This finding led us to launch the Global Low Volatility Equity strategy, which is designed to deliver higher risk-adjusted returns and lower volatility than a comparable market capitalisation index by investing in the least volatile stocks across all sectors globally.
This year, a decade after launching the strategy, we revisited our research to ascertain if our initial analysis still holds true. Were the least volatile stocks from each sector more attractive than their riskier peers on a risk-adjusted return basis?
As we explain in this new research paper, the answer is a resounding ‘yes’. If anything, the results are even stronger, defying the notion that once an anomaly is discovered it tends to be arbitraged away. In our view, the low volatility anomaly is as alive and kicking as it was ten years ago.
Read: The low volatility anomaly in equity sectors – 10 years later!
