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Are Low-Risk Stocks Really Low-Risk?

Why are there no funds offering exposure to the best-performing factor?

Nicolas Rabener
10 min read
3 Mar 2025

SUMMARY

  • The long-short low volatility factor generated a higher long-term return than momentum, value, or size
  • However, the factor’s performance also features bear markets and crashes
  • Long-only low volatility ETFs haven’t offered higher Sharpe ratios than the S&P 500

INTRODUCTION

When parents are asked who their favorite child is, the diplomatic answer is that they love all their children equally, although that may sometimes be challenging. When investors are asked what their favorite factor is, there is usually little diplomacy and one clear loser – momentum. Most investors dislike the momentum factor as they believe it is too simple to work.

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