•     Introduction: Low Volatility Redux

•     Dissecting Dividend Payers

o     History

o     Cash

o     Current Yield

o     Valuation

o     Quality Crisis

o     Payout Problems

•     Conclusions & Exhibits

•     Appendix

Introduction: Low Volatility Redux

A client recently requested an update on how Low Volatility shares had fared since our November 2012 publication and asked if we thought high dividend paying firms offered investors a better place for risk averse investors to hide. Since the two groups have significant overlap and are highly correlated, we thought we would both report back on the progression of Low Volatility products as well as expand the analysis to include firms with high dividends. In our work Understanding the Value of Low Volatility, Kailash demonstrated that Low Volatility strategies had the potential to reduce investors’ downside significantly while doing a reasonable job of tracking broader indices over the long haul. However, our work took a less sanguine view of how reliable that signal was as our research indicated that “low vol” strategies are effectively just poorly controlled value strategies.

Our November 2012 Low Volatility paper concluded with a timing model which works to identify when the payoff structures to Low Volatility strategies are most beneficial to investors. Despite (or possibly because of) the incredible popularity of Low Volatility strategies, our timing signal declared the payoff structures of Low Volatility firms as the “least compelling” we had seen them. Figure 1 below shows the returns to Low Volatility firms, poorly ranked firms within Low Volatility, and highly ranked firms within Low Volatility for both our Large Cap and Small & Mid Cap universes since our November 2012 report.

Low Volatility has struggled since November 2012


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