Low Volatility over the Market Cycle: Understanding Factor Investing
Oct 18, 2023
Low volatility is one of the few factors that has historically performed well in turbulent markets and, since the 2008 global financial crisis, has garnered increased attention from institutional investors.
This research report, initially published in 2016 and now updated, delves into the rationale for low-volatility investing and outlines MSCI's approach to constructing low-volatility indexes. Drawing on 35 years of data, including 15 years of live data since the index’s launch, we demonstrate that the fundamental characteristics of the MSCI Minimum Volatility Indexes have remained consistent with the expected behavior of the low-volatility factor.
The following exhibit shows that from June 1988 through May 2023, the MSCI World Minimum Volatility Index outperformed the market during the six bear-market downturns over the 35-year period, illustrating the index’s strong defensive characteristics.
Outperforming during bear markets shows minimum volatility’s defensive characteristics
Analysis period is from June 1988 through May 2023.
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