Cushioning the Decline

With the S&P 500 down -14.7% for calendar 2020, and -18.8% since its peak in late February, investors are rightly concerned to identify strategies that might help to mitigate the ongoing decline. A number of defensive factor indices have performed relatively well in March, but the leader for the year so far is S&P 500 Low Volatility.

Aficionados of our low volatility index family are probably tired of hearing me say that these indices are designed to deliver participation and protection. They aim to participate in rising markets, and to protect investors in falling markets, with the important caveat that neither participation nor protection are perfect. 

A low vol strategy should be expected to lag the total return of a strong market, although still delivering a positive result. In falling markets, low volatility may well show a negative total return, although it should normally outperform the benchmark index from which its constituents are drawn. The market’s action in 2020 provides a window on both participation and protection.

Read the full whitepaper now at the link below