• Tight lockdown restrictions and unprecedented government stimulus measures help explain unfavorable relative performance for low-volatility strategies over the past 12 months.
  • Following past crises, investors have tended to revalue defensive options—pushing up the relative performance of low-volatility securities.
  • While no investment strategy works exactly as expected all of the time, we continue to believe that managed-volatility strategies will provide some measure of loss mitigation during the next significant equity drawdown.

With the potential to deliver equity-like returns with lower expected volatility over the long run, we believe the appeal of managed-volatility exposure within a broader portfolio is apparent. Depending on how the allocation is funded (meaning which combination of traditional stocks and bonds are sold to purchase low-volatility equity), it can allow for potentially higher expected returns, lower expected volatility, or both.
 

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In this two-part Making the Case for Managed Volatility series, we will highlight how current valuations support the current case for managed-volatility strategies and how changing inflation expectations should support relative returns going forward.

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