In a recent study published by an exchange traded funds (ETFs) manager, it has been highlighted that in the “low volatility” smart beta strategies, different underlying methodologies can result in markedly different outcomes. This study has considered the unconstrained and the constrained approaches.
The authors advocate to retain the unconstrained approach on the argument it avoids to allocate to unwanted sectors and countries otherwise required by the constrained approach. The implementation of the unconstrained low volatility strategy is suggested through a combination of two factors investing; High Dividend and Low Volatility factors that are available here through ETFs. We have analysed the merit of investing through such low volatility methodology relative to the others we know of in the smart beta universe. We have investigated the persistency of such strategy more specifically during market stress period….