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Low Volatility Funds: Lost Decade or Flawed Design?

Long-only vs long-short low volatility strategies

Nicolas Rabener
10 min read
16 Feb 2026

SUMMARY

  • Low-volatility funds have generated poor absolute and risk-adjusted returns recently
  • However, the long-term evidence still supports the defensive use case
  • Significant difference between long-short and long-only low-volatility strategies

INTRODUCTION

Low-volatility strategies are relatively easy to market. There is almost always some economic or market risk that appears to justify reduced equity exposure. Adding to their appeal, academic research has long documented that low-risk stocks have outperformed the broader equity market on a risk-adjusted basis. On the surface, the case seems compelling.

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