low-volatility

Picking Stocks Ambitious investors also have the option of devising low-volatility portfolios for themselves.

Beat the Market—With Less Risk Ben Levisohn 2011

Until this year only a few firms—Dutch money manager Robeco, Los Angeles-based Analytic Investors and Acadian among them—offered portfolios that use low-volatility strategies, and they made them available primarily to institutions.

Beat the Market—With Less Risk Ben Levisohn 2011

Here's how to implement the low-volatility strategy—or elements of it—in your portfolio.

Beat the Market—With Less Risk Ben Levisohn 2011

The most complex portfolios use "minimum variance" algorithms, a strategy that incorporates beta, standard deviation and other measures to build a low-volatility portfolio.

Beat the Market—With Less Risk Ben Levisohn 2011

PowerShares has filed plans with regulators to launch developed-market and emerging-market low-volatility ETFs using S&P indexes, while iShares has filed for its own versions of the strategy, which will use MSCI's Minimum Volatility indexes.

Beat the Market—With Less Risk Ben Levisohn 2011

Academic research suggests the low-volatility strategy has worked for even longer periods.

Beat the Market—With Less Risk Ben Levisohn 2011

For instance, Mr. Sefton says that because some low-volatility stocks are looking pricey these days, you could reduce the weightings of those companies in favor of cheaper "deep value" stocks.

Beat the Market—With Less Risk Ben Levisohn 2011

New Funds Until recently, there weren't many mutual funds or ETFs dedicated to low-volatility investing.

Beat the Market—With Less Risk Ben Levisohn 2011

The least-volatile quintile of the 1,000 biggest stocks in the U.S. returned 10.2% annually from 1968 to 2010, while the most-volatile quintile gained 6.6%, according to Brendan Bradley of Acadian Asset Management in Boston, who earlier this year published a study on the returns of low-volatility stocks with Malcolm Baker of Harvard University and Jeffrey Wurgler of New York University in the Financial Analysts Journal.

Beat the Market—With Less Risk Ben Levisohn 2011

"It's the first good low-volatility ETF," he says.

Beat the Market—With Less Risk Ben Levisohn 2011