A thought occurred to me as I read this article from IndexUniverse about four new low volatility ETFs from iShares. The overall education level of the typical investor (talking someone with a brokerage account as opposed to someone whose only involvement is through a 401k) has improved versus where it was in the 1990s.
If you ask most ETF providers why they create the products they do they will most likely tell you that these are the funds that their clients/customers want from them. While there is probably more to it than that there is the belief that a demand is being met.
We are seeing a lot of funds coming out that offer a low volatility spin on some broad index including the four new ETFs in the above article. We've covered the extent to which lower volatility concepts, when executed correctly, can offer a better long term result by going down less and going up less over the course of a full stock market cycle, or as I have described it; smoothing out the ride. You should be able to find research on this as there are many different ways to capture the same general effect.
If there is new demand, compared to years past, for products that target better risk adjusted returns then I take that as a sign of more investors understanding the concept of risk adjusted returns on some level. I don't think this existed 15 years ago.
I believe we also know far more about foreign markets, how certain aspects of macro economics impact countries and markets at a far deeper level than we used to--this as a function of the macro economic failings of so many countries.
If we do know more about these things, it is because the seemingly dreadful stock market results of the last eleven years and the financial crisis of the last four years (or longer) have caused more people to ask more questions, rely on fewer assumptions and seek out better answers.
This will not prevent the same old behaviors from every other past big bad event from manifesting themselves as some people will always panic, be done in by misusing leverage one way or another, be too confident and so on. I will repeat this probably only applies to people engaged enough to have a brokerage account but I do believe this is meaningful progress.
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5 comments:
That is just odd. They "screen for stocks that bounce around in price less."
I cannot imagine how that would affect performance.
The S&P500 low volatility index has beaten the S&P500 quite nicely over the last 10 and 20 year periods.
10 Years 6.74% 2.72%
15 Years 8.73% 6.50%
20 Years 10.21% 8.73%
I think it's certainly an intersting holding for retirees wanting to be exposed to equities but with a smoother ride. If history is any indication, you don't sacrifice return.
These ETFs should certainly be worth consideration. This personal investor anticipates they will concentrate on so-called value stocks, meaning relatively low PE and reasonable dividends, and maybe add some bonds for additional stability and income. The expense ratios appear very reasonable.
Roger,
Is there a minimum duration for a bear market or is it just a 20% decline? This looks like it has bottomed already.
as the term "bear" simply assigns an animal caricature to a capital market I think it is safe to say there is nothing official about any aspect of it.
So what is a bear and when is it over? Is it over when it bottoms or when it gets back to the old high along the lines of GDP? The SPX is below its high from four years ago, remember.
I think this is still the same event playing out. There have been very big moves in both directions and I think that will continue.
If it is over (certainly possible) as dfined as 1075 being the low then that is better than the alternative but I don't think the era of downside volatility is over.
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