LOVM: Low Volatility-Momentum Portfolios

The Factor Combination Creating the Least Amount of Emotional Pain?

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


  • Low Volatility-Momentum portfolios in the US outperformed the stock market since 1989
  • Investors can use various multi-factor models for combining the two factors, which results in different portfolios
  • Valuations have increased and the multiple expansion is mainly explained by Momentum, not Low Volatility


Factor investing is hard and some factors make it harder than others. A Value strategy results in a portfolio of stocks that exhibit temporary or structural issues and are usually rated “Sell” by brokers, which makes these emotionally challenging to hold. Small caps are companies that are unknown to most investors and lack the prestige associated with investing in firms like Apple or Amazon.

Buying Momentum stocks is easy given that they represent recent winners, but might leave investors questioning what happens when trends revert. A Low Volatility strategy is highly appealing from a risk perspective, but results in a portfolio of unexciting stocks, which is equally difficult to hold (read Low Vol Factor: From Obscurity to Stardom).

Investors evaluating multi-factor portfolios might want to consider combining Momentum and Low Volatility as it likely creates the least amount of emotional pain compared with other factor combinations. Such a portfolio would include recent winners, aka the feel-good stocks, but only those with relatively low risk, which should help to avoid stocks on steroids.

In this short research note, we will explore the performance and construction of Low Volatility-Momentum (LOVM) portfolios in the US.


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

  1. Intersectional Model: The universe of stocks is sorted simultaneously by both factors and the stocks in the intersection are chosen.
  2. Sequential Model: Stocks are first ranked by one factor and the r