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Not Boring Enough: Investors Leave "Low-Volatility" Funds

FYI: Whoa, give us back our money. We wanted something boring.
That's what a growing number of investors are saying after joining the wave earlier this year into so-called "low-volatility" funds. These types of funds try to offer nervous investors a smoother ride, by buying stocks with a history of milder price swings than the rest of the market. Think power utilities, phone companies and other traditionally staid industries.
Regards,
Ted
http://bigstory.ap.org/article/43d60efdfb2f495c94cc34c1ade88f3c/not-boring-enough-investors-leave-low-volatility-funds

Comments

  • Probably, the "boring thing" investors fleeing low-vol stock funds are looking for is Vanguard Wellesley.

  • VMVFX has been doing quite nicely imho. But then again, I don't jump in and out of things because of their title or stated goal, but rather for its holdings, allocation, costs, and how it fits into my overall portfolio.
  • The marketing staffer who thought up the moniker "Low Volatility" for the fund description most likely got a nice bonus check though.
  • PRESSmUP said:

    The marketing staffer who thought up the moniker "Low Volatility" for the fund description most likely got a nice bonus check though.

    Probably yeah. And I'm sure many flocked to it (and other similarly-named funds) because it had those words in the title. Me? I saw an eclectic world stock fund that skewed mid-cap, with a near 50-50 split US/international. The fund name had no influence on my going into it soonafter it opened.
  • Sorry rforno.....I did not intend to infer that you purchased this due to the name. I also purchased a fund (SCHD) due to the similar underlying characteristics.

  • Oh no offense taken! :)
    PRESSmUP said:

    Sorry rforno.....I did not intend to infer that you purchased this due to the name. I also purchased a fund (SCHD) due to the similar underlying characteristics.

  • these stocks were also growing more expensive relative to how much profit they produce, an important measure of valuation.
    Valuation is getting ahead of these stock. VMVFX is a global fund with ~50% oversea and currency hedging.
  • Fwiw, CAPE has seriously outperformed SPLV (also SCHD and similar) the last 4/3/2/1y/ytd, and if you track closely during drops, much less jumps, you give up effectively nothing in terms of 'volatility.'

    I myself ended flirtation w/ low-vol etfs some time ago simply because of subpar performance.

    So maybe that is some of it. (Of course I was not in SPHD.)
  • @davidmoran, as I recall you invest in Doubleline Schiller CAPE fund, correct?
  • Davidmoran, could you provide more information on the "subpar performance" of the low-vol funds? I am not challenging your comment, but the ones we follow, specifically SPHD and SPLV, have out-performed their benchmarks rather nicely. Although SPLV is a bit under the S&P 500 YTD, it has done better over 2 & 3 years. Over five it is a bit lower, but it has done so with much less volatility. SPHD has run rings around the index. Understand that I do not expect it to continue its blazing path, as it has shown signs of weakening the last 1-3 months. But it is hard to argue with its overall performance. The same could be said for XMLV versus MDY. Some have suggested this is a fad. Perhaps. But so far, at least, when the index swoons, these have held up pretty well.
  • I own VMVFX. I was indeed looking at other low volatility funds like those from BMO. However, I never brought myself to pull the trigger. Thing is, ANY fund, important to buy at right time. There is no fund that you can just buy any time, unless maybe one like RPHYX for different intent and purpose.
  • I did a quick comparison of the performance of VMVFX against a portfolio of 50% VTI/50% VXUS. Over the lifetime of VMVFX, it did much better. Over the past year, the performance was about equal. Of course, no conclusions to be drawn here, but I'm wondering if this is just another illustration of reversion to the mean.
  • Okay, so can we see something about the volatility of your 50/50 mix? I mean that's what it is about right? Otherwise we can also say some other global mutual fund performed better and THAT does not mean anything one way or the other, also.

    If VMVFX did what it said it will do, then it has fulfilled its mandate. Minimum volatility vs Low Volatility as someone from Vanguard explained recently.
  • Thing is, ANY fund, important to buy at right time.

    This is precisely why many investors are going to underperform. They think they can time the market, they think they can time fund purchases. History has shown that we humans are not capable of doing this (we love to buy high and sell low).
  • The article suggests that poor recent performance sparked the exodus. Perhaps the low vol stocks were bid up too much and thus became overvalued?

    Nick de Peyster
    http://undervaluedstocks.info
  • edited October 2016
    @Sven, yes indeed, most of our nut is there. And now that I have bailed from the Yackts and Parnassus, even more.

    I have never owned CAPE on its own. I just track it irregularly, and am always (a little, but decreasingly) surprised to see it outperform all the other ones I like, or used to --- the half-dozen smart secret-sauce LC div / value etfs, e.g. And now SPLV.

    @BobC, was not comparing with their benchmarks. SPHD has been superb at shorter times and also overall; I wish I had been in it.

    As for ups / downs, just go to M* 10k-growth graphs (put in an mfund to start, like TWEIX or some Vanguard or some other that you favor), and then select time windows of, say, dips that made you jump. Myself, I do not see enough smoothing to matter with SPLV vs CAPE (which for some reason M* refuses to show today, hmm).
    But notes from yesterday: over the pothole starting ~9/18/14, SPLV was notably better. The one starting ~8/13/15, pretty much equivalent. And the one starting before last xmas, meh, with SPLV slightly better.

    So given the greater bucks I wind up with from holding CAPE, I would take it over SPLV if I had to choose b/w them only. That's all. I learned long ago (partly anyway, he claimed) not to sweat market potholes, or at least to ride them out and not flinch, or not do anything much more than flinch.
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