Low Volatility Strategies Suck

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Leuthold-chart from March green book-large cap leadership emergingLeuthold-chart from March green book-quintile analysis of low vol strategies Regular readers of this blog know how fond I am of Leuthold Group's research. This month, Leuthold's PR man, Ben Bishop, of the Lowe Group, sent me this interesting precis of this month's research. One hint: Low volatility strategies suck.

Leuthold Group’s Green Book has been published for March. A few highlights:

1. Eric Weigel (Director of Research) examines the increasingly popular low-volatility equity strategies and concludes low volatility strategies are incredibly defensive and massively underperform in up equity markets - not optimal as standalone equity strategies unless one has a very bearish view of equity markets. The attached chart shows the returns spread of low volatility to high volatility stocks since 1990.

2. Doug Ramsey (CIO) looks at large versus small caps - in what may be the early stage of 4-5 years of large-cap dominance. See the attached chart -- ALL of historical small-cap outperformance has occurred when real interest rates are negative. But despite "fighting the Fed," Leuthold predicts large-cap outperformance.

3. Chun Wang (Research Analyst) writes about bond market risk remaining low. Leuthold is cautiously optimistic and recommends spread sectors. U.S. credit is improving while Europe deteriorates and rates are expected to remain in a range.

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REP. Editor-in-Chief David Aldo Geracioti on the business of Wall Street from a free-market perspective.

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David Aldo Geracioti

Is the editor-in-chief of REP. magazine.  He is also a devotee of the Austrian School of Economics leading lights Ludwig von Mises, Friedrich von Hayek, Murry Rothbard and to other thinkers in...
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