BMO Global Asset Management White Paper: Low-Volatility Anomaly Shows No Signs
Investor Psychology and Manager Benchmarking Contribute to Ongoing
CHICAGO, IL -- (Marketwired) -- 12/18/13 -- BMO Global Asset
Management today released its latest "Investment Perspectives" white
paper, Low-Volatility Equity Investing. This most recent edition
addresses the history behind the low-volatility anomaly, how it is
playing out in today's markets and the opportunities it provides for
The paper shows that low-volatility stocks -- those with less price
variability than the average stock in the market -- have outperformed
other stocks; it highlights research showing that this anomaly has
persisted over the past 90 years. The report also notes that this is
one of the more surprising market anomalies uncovered to date.
"In theory, return is supposed to have a positive correlation to
risk," said Ernesto Ramos, Head of Equities, BMO Asset Management
U.S. "Higher-risk stocks are supposed to deliver higher returns, and
lower-risk stocks are supposed to deliver lower returns. The
low-volatility anomaly stands this sensible theory on its head. If
this 90 year-old pattern were to continue, as we expect, the
low-volatility anomaly may provide a nice opportunity for prudent
investors to make outsized returns."
The white paper suggests a number of potential reasons behind the
low-volatility anomaly and why it is likely to continue in the
-- Money flowing into benchmark-driven strategies, such as index funds
and ETFs, distorts the market and makes low-volatility stocks even
more undervalued. This, in turn, increases their potential return.
-- High-volatility stocks continue to be overbought, as investors
continue to exhibit behavioral finance biases rooted in human
psychology; these include the "lottery" effect and a preference for
"glamour" stocks, among others.
-- Structural conditions in the money management business, such as the
option-like nature of compensation of equity managers, encourage them
to avoid low-volatility stocks in favor of high-risk stocks. This may
be enough of a bias to explain the low-volatility effect.
"Low-volatility investing represents a surprisingly significant
potential opportunity for investors to earn excess returns over the
benchmark," noted Mr. Ramos. "With that in mind, investors would be
wise to consider an allocation to low-volatility equity strategies in
To access the full white paper report, visit
About BMO Global Asset Management
BMO Global Asset Management is a
global investment manager with more than $132 billion in assets under
management, including discretionary and non-discretionary assets
under management, and more than $162 billion in assets under
administration as of October 31, 2013.
Our two multi-disciplined teams are based in Toronto and
Chicago/Milwaukee, and our network of world-class boutique managers
is strategically located across the globe. They include Monegy, Inc.,
Pyrford International Ltd., Lloyd George Management and Taplin,
Canida & Habacht, LLC. BMO Global Asset Management delivers service
excellence from offices throughout North America, and in London, Abu
Dhabi, Mumbai, Beijing, Shanghai, Hong Kong, Melbourne and Sydney.
Our approach has led us to be recognized by Pension & Investments as
one of the world's largest 100 asset managers based on combined
assets under management as of December 31, 2012.
We are a part of BMO Financial Group (NYSE: BMO), a fully diversified
financial services organization with C$537 billion total assets and
more than 45,500 employees as of October 31, 2013.
is not intended to serve as a complete analysis of every material
fact regarding any company, industry or security. The opinions
expressed here reflect our judgment at this date and are subject to
change. Information has been obtained from sources we consider to be
reliable, but we cannot guarantee the accuracy. This publication is
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