Low vs. High Volatility Stocks

A couple months ago I posted about technology valuations on LinkedIn. One concerned Amazon after a WSJ article discussed the issue. Another post was about the high NASDAQ returns compared to the S&P 500. At that point, I personally reduced my tech exposure. I’ve been asked about what to invest it for a high value market.

I am NOT a financial adviser and everyone’s situation is different. However, the low volatility anomaly is interesting. This anomaly finds that low volatility (i.e. risk) stocks perform almost as well as high risk stocks. The original article came out years ago, but then A low volatility ETF came out in 2011 with the ticker SPLV. Right now, it owns almost no tech. Let’s see how it’s done over the last 7 years.

As of EOD yesterday, if you invested $10,000 in SPY (the S&P 500 ETF) you would have $22,677. In SPLV, you’d have… $22,672. I’d say that’s pretty equivalent!

Equally as important, SPLV has a monthly standard deviation of 2.5% whereas SPY has a monthly standard deviation of 3.2%. So you get the same returns over the last 7 years with 22% lower risk. Not sure if this will keep going, but I picked some up when I reduced my tech exposure.