In 2020, equity strategies that sought to provide downside protection through exposure to low volatility (low vol) portfolios generally suffered one of their worst years, relative to the cap-weighted index, since 1999.1 Particularly concerning for many investors in these strategies was the lack of downside protection many low vol indices provided during the period of the market’s largest drawdown (2/20/2020–3/23/2020).2 Despite the average underperformance of low vol strategies, 2020 also resulted in a large dispersion of results across low vol managers within the broader style. This increased dispersion compounded the disappointment for many asset owners, as some of the more popular low vol strategies underperformed the low vol style benchmarks by relatively large margins. In this paper, we would like to make two short, but important, observations about the performance dynamics of low vol strategies in 2020, and share our expectations for the performance of this investment style going forward.

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