Aperio Group examines why minimum variance investing historically outperformed the market and argues much of its success came from unintended factor exposures rather than low volatility alone. The paper contends recent investor flows have erased its traditional value bias, potentially making entry more expensive while proposing a way to restore it.
Restoring Value to Minimum Variance
Apeiro
Lisa Goldberg, Ran Leshem
Research
12 Pages
Key Takeaways
Historical Outperformance Explained: From 1973 to 2012, minimum variance returned 11.44% annually versus 9.80% for the S&P 500, with 12.89% volatility versus 15.68%.
Style Factors Dominated: Style exposures contributed 1.20% of the strategy's 1.64% annual excess return, with value adding 0.53% and size contributing 0.62% per year.
Value Tilt Restored: A value tilted minimum variance strategy increased annualized returns to 11.82% from 11.44% while improving excess return over the S&P 500 to 2.02%.
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