Low Volatility

Low Volatility

A Low volatility strategy involves buying stocks which have higher stability in price movements

The Low Volatility Anomaly

1

Theory says that investors can expect to earn higher returns by taking on higher risk.

2

However, empirical research has shown that the strategy of buying low-volatility stocks tends to outperform the broad-market over the long-term.

3

Defensive characteristics have resulted in lower drawdowns during bear markets.

Perhaps the "greatest anomaly in finance"

Theory says that investors can expect to earn higher returns by taking on higher risk.

However, empirical research has shown that the strategy of buying low-volatility stocks tends to outperform the broad-market over the long-term.

Defensive characteristics have resulted in lower drawdowns during bear markets.

Why Does Low Volatility Strategy Work?

CAUSE
Lottery effect

Investors tend to overpay for high volatility stocks in the hope of it turning into a multi-bagger, while they tend to underpay for low volatility stocks

Asymmetric Returns

Low Volatility strategies tend to fall less in market downturns, which more than compensates for modest underperformance during rising markets.

Overconfidence

Investors are generally overconfident in their ability to forecast the future of companies with more uncertain outcomes (high volatility stocks)

Historical Index Performance

Why should you invest?

Source/Disclaimer: *Based on historical data, S&P BSE Low Volatility TRI showcases lower drawdowns than broad-based indices during market crashes

Scheme Details

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Frequently Asked Questions

  • Traditional wisdom suggests higher returns can only be achieved by taking higher risks. Empirical research has challenged such pre-conceived notions by showing a strategy where securities with low-volatility (low risk) tend to outperform the broad-market over the long-term. The Low Volatility Factor tries to capture this premium by buying securities which have higher stability in price movements.
  • A factor is any characteristic that helps explain the long-term risk and return of the asset class. Factor investing is an investment approach that involves targeting such specific factors in a systematic manner. Popular factors include Momentum, Quality, Value, Low Volatility, Size, etc.
  • Both the Motilal Oswal S&P BSE Low Volatility ETF and Motilal Oswal S&P BSE Low Volatility Index Fund invests in companies that are part of the S&P BSE Low Volatility Index. The Index is designed to track the performance of the 30 companies in the S&P BSE LargeMidCap with the lowest volatilities, as measured by standard deviation.

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