Low-volatility stocks (those with modest price fluctuations, compared to their brethren) are considered relatively low risk. Nevertheless, theyve outpaced roller-coaster issues for decades. The empirical evidence is clear and has been since the work done by Dr. Robert Haugen in the 1970s, asserts Feifei Li, director and head of research at Newport Beach, California-based Research Affiliates. Writing in her firms Simply Stated publication, Li suggests that investors include a low-volatility component in a diversified portfolio.
Such a recommendation is not merely academic. In recent years, MSCI and S&P have introduced low-volatility indexes. Where there are indexes, it seems, ETFs will follow. PowerShares S&P 500 Low Volatility ETF, for example, which was launched in May 2011, has over $3 billion in assets. Thus, advisors can easily add low-volatility equities to clients portfolios.
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