Restoring Value to Minimum Variance

Forthcoming in Journal of Investment Management

12 Pages Posted: 5 Sep 2013 Last revised: 26 Nov 2013

Lisa R. Goldberg

University of California, Berkeley; Aperio Group

Ran Leshem

Aperio Group

Patrick Geddes

Aperio Group

Date Written: November 25, 2013

Abstract

A long-only investable minimum variance strategy outperformed the S&P 500 over the four decades from January 1973 to December 2012. Through the lens of a factor model, we show this outperformance can be largely attributed to implicit style bets. Specifically, minimum variance has thrived by tilting away from size and volatility and toward value. As funds have poured into minimum variance in the wake of the financial crisis, and plausibly as a consequence of this trend, the value tilt has disappeared and a momentum tilt has emerged. This suggests that the cost of entry to minimum variance is at an historic high. We show how the value tilt can be restored to minimum variance by targeting specific exposures, and that there was a substantial long-term benefit to the restoration at most recent points of entry to the strategy.

Keywords: minimum variance, low risk, value factor

JEL Classification: G11, G12

Suggested Citation

Goldberg, Lisa R. and Leshem, Ran and Geddes, Patrick, Restoring Value to Minimum Variance (November 25, 2013). Forthcoming in Journal of Investment Management. Available at SSRN: https://ssrn.com/abstract=2320264 or http://dx.doi.org/10.2139/ssrn.2320264

Lisa R. Goldberg (Contact Author)

University of California, Berkeley ( email )

Department of Statistics
367 Evans Hall
Berkeley, CA 94720-3860
United States

Aperio Group ( email )

3 Harbor Drive
Suite 315
Sausalito, CA 94965
United States

Ran Leshem

Aperio Group ( email )

3 Harbor Drive
Suite 315
Sausalito, CA 94965
United States

Patrick Geddes

Aperio Group ( email )

3 Harbor Drive
Suite 315
Sausalito, CA 94965
United States

HOME PAGE: http://www.aperiogroup.com

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