During market drops, the Low Volatility factor has outperformed



During market drops, the Low Volatility factor has outperformed

Nick KalivasTime to learn: 2 min

In 2017, the S&P 500 Index didn’t expertise any corrections larger than 5%. So far in 2018, there have been three such market drops. So which 12 months represents the extra typical investor expertise? History exhibits us that the relative calm of 2017 was an outlier, and that losses and volatility are recurring occasions that buyers needs to be ready for.

It’s not unusual for the S&P 500 Index to expertise corrections larger than 5%. As the desk under exhibits, there have been 15 such declines since April 2011, with every year — besides final 12 months — experiencing at the least one. In all however considered one of these durations, the S&P 500 Low Volatility index outperformed the S&P 500.

The Low Volatility factor outperformed the broad market in 14 of 15 downturns

S&P Low Volatility Index vs. S&P 500 Index

Source: Bloomberg, L.P., as of Oct. 29, 2018.

* The most up-to-date low in the S&P 500 occurred Oct. 29, 2018

Key takeaway

The development potential of shares is a foundational a part of many portfolios, however smoothing out the ups and downs of the inventory market could also be a lovely prospect for some buyers. That’s the place the Low Volatility factor may also help.

On common, the S&P 500 Index misplaced a median of 9.01% throughout these 15 downturns, whereas the S&P 500 Low Volatility Index misplaced solely 4.71%. This is essential as a result of a decrease “down capture” implies that the index has fewer stairs to climb to be able to recapture its prior peak. Return math helps illustrate this level: If the market declines by 50%, it takes a 100% return to return the level the place the sell-off started. Losing much less can present the basis for producing competitive returns throughout the market cycle and smoothing out an funding expertise.

Historically, the S&P 500 Low Volatility Index has tended to seize about 75% of the S&P 500’s upside and about 50% of its draw back.1 In different phrases, it has participated in market rallies (not absolutely) and market declines (not absolutely), and it possesses a distinct danger/return profile than the S&P 500 Index.

Investors seeking to mitigate danger and cushion the influence of market declines on their portfolio could take into account the Low Volatility factor. Invesco has several strategies that may assist.

1 Source: Bloomberg, L.P. Between April 30, 2011, and Sept. 30, 2018, the S&P 500 Low Volatility Index had an up seize of 73.6% and a down seize of 44.8% in comparison with the S&P 500 Index.


Important info

Blog header picture: Heather Bradley/Shutterstock.com

Down seize/up seize consult with the quantity of draw back/upside in the broader market that’s captured by an index.

The S&P 500® Index is an unmanaged index thought-about consultant of the US inventory market.

The S&P 500® Low Volatility Index consists of the 100 shares from the S&P 500® Index with the lowest realized volatility over the previous 12 months.

Factor investing is an funding technique wherein securities are chosen based mostly on sure traits and attributes. Factor-based methods make use of rewarded danger elements in an try to outperform market-cap-weighted indexes, cut back portfolio danger, or each.

Low volatility can’t be assured.

Nick Kalivas

Senior Equity Product Strategist

Nick Kalivas is a Senior Equity Product Strategist representing Invesco’s exchange-traded funds (ETFs). In this function, Mr. Kalivas works on researching, growing product-specific methods and creating thought management to place and promote the good beta fairness lineup.

Prior to becoming a member of Invesco, Mr. Kalivas spent the majority of his profession in the futures business, delivering analysis, technique and market intelligence to institutional and excessive web value purchasers centered in the fairness and rate of interest markets. He was a featured contributor for the Chicago Mercantile Exchange, and supplied analysis providers to a New York-based international macro commodity buying and selling advisor the place he equipped perception on equities, fastened earnings, international alternate and commodities. Nick has been quoted in the Wall Street Journal, Financial Times, Reuters, New York Times and by the Associated Press, and has made quite a few appearances on CNBC and Bloomberg.

Mr. Kalivas has a BBA in accounting and finance from the University of Wisconsin – Madison and an MBA from the University of Chicago Booth School of Business with concentrations in economics, finance, and statistics. He holds the Series 7 and Series 63 registrations.



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