Examining Low Volatility's Performance In Various Market EnvironmentsExamining Low Volatility's Performance In Various Market Environments
Three headwinds working against the low volatility factor.
November 1, 2016
By Nick Kalivas
Rates, volatility and a broad market rally have contributed to the factor's late-summer slump
Late summer has not been fruitful for the low volatility factor. From July 6 to Sept. 9, the S&P 500 Low Volatility Index has fallen by 4.67%, while the S&P 500 Index gained 1.70%. This is in sharp contrast to the second quarter, when the low volatility index returned 6.75%, and the broad-market index returned 2.46%. Naturally, some investors are wondering what's behind the shift.
Looking at market conditions during this time, I see three headwinds that were working against the low volatility factor:
Interest rates rose. The 10-year Treasury yield rose from 1.31% on July 6 to a close of 1.67% on Sept. 9.
Volatility was relatively flat. The CBOE Volatility Index (the VIX) was 14.96 on July 6 and was 12.51 on Sept. 8. before finishing at 17.5 on Sept. 9.
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