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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