Low Risk Anomaly since 1860

Here is a recent article published by Robecco on the low-risk anomaly. This anomaly was first documented in the 70s as higher beta stocks are found to have negative alpha, or a predicted performance negatively linked to their beta.

The lower risk portfolio is based on a few rules:

• From the largest 1,000 stocks, we select 500 with lowest volatility.
• From this subset, we then choose 100 stocks with the best net-payout-yield and price momentum.
• The resulting portfolio is then rebalanced on a quarterly basis.

The criteria lead to higher return for low vol and therefore much higher Sharpe ratio:

The outperformance is confirmed every single decade:

The outperformance is more pronounced on bear markets:

Lower volatility stocks outperform the higher volatility ones as they tend the resist wars and recession better than the more volatile ones.