Why lower risk doesn’t necessarily mean lower returns
Imagine a race between a speedy, boastful hare and a steady, quiet tortoise. You can think of minimum volatility strategies as akin to the tortoise – humble, sometimes overlooked, but a formidable participant in the race over the long-term.
Why aren’t all investors tortoises, then? Two persistent reasons:
- Structural impediments that require managers to chase higher risk stocks to achieve returns, bidding up prices in the process
- Behavioral biases of investors looking to “make it big” in riskier, more expensive stocks.
Investors not subject to these hurdles can take advantage of attractive values and potential for market-like performance with less risk.
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