Low Vol-Momentum vs Value-Momentum Portfolios

Boring versus Cheap Winners

April 2020. Reading Time: 10 Minutes. Author: Nicolas Rabener.


  • Low Vol-Momentum & Value-Momentum portfolios outperformed stock markets since 1989
  • Low factor correlations contributed to the attractive risk-return profiles
  • Excess returns have been lower in the most recent than in previous decades


If an investor would state today that in ten or twenty years most portfolios would include an allocation to cryptocurrencies, he would likely be laughed at. However, a similar response would have been encountered in 2000 when proposing to invest in low-risk stocks.

At that point, investors were ignoring boring companies like REITs or utilities for exciting technology stocks, especially ones whose name included a “.com”. Furthermore, the theory of low-risk stocks outperforming high-risk stocks, even if only on a risk-adjusted basis, seems in direct violation of capital market wisdom and theory, where a higher risk should earn a higher return.

Fast forward to 2020 and Low Volatility has become a favorite factor in investment portfolios with broad support from academic research. Investing in low-risk stocks is still unexciting given the nature of the businesses, but comes with the comforting hypothesis of providing equity returns at lower risk.

Investors interested in spicing up such a portfolio can combine the Low Volatility with the Momentum factor, which then becomes betting on boring winners. We recently showed in a research note that this factor combination generated attractive excess returns across stock markets globally over the last 30 years. Some investors are suggesting that this combination is superior to an older favorite – betting on cheap winners.

In this short research note, we will compare Low Volatility-Momentum (LOVM) and Value-Momentum (VMOM) portfolios globally (read LOVM: Low Volatility-Momentum Portfolios).


We focus on all stocks in the US, European, and Japanese stock markets above a market capitalization of $1 billion. Combining factors into a multi-factor portfolio can be achieved by three methodologies, which are as follows: