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Low-Volatility Funds Rise Amid Market Turbulence

  //stocks-investing.news-articles.net/content/202 .. olatility-funds-rise-amid-market-turbulence.html
  Published in Stocks and Investing on Wednesday, December 10th 2025 at 5:27 GMT by The Globe and Mail

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Low‑Volatility Funds in a Volatile Market: What the Globe and Mail Tells Us

The Globe and Mail’s recent feature—titled “Low‑volatility funds, market stocks, investing crash”—provides a thorough dive into why investors are turning to low‑volatility (LV) funds and how those funds have fared amid the latest market turbulence. Drawing on data, expert commentary and historical context, the article explains both the appeal of LV strategies and the risks that still lurk beneath the surface. Below is a detailed synopsis of the piece, broken into its key themes and arguments.

1. The Growing Popularity of Low‑Volatility Funds

LV funds have surged in popularity over the past decade, with assets under management now in the hundreds of billions of dollars. The article starts by noting that, unlike traditional index funds that track the entire market, LV funds cherry‑pick stocks with historically low price swings. This is achieved by filtering the S&P 500 (or other major indices) for the 30–40 stocks that have shown the smallest standard deviation over a 12‑month period. The result is an ETF or mutual fund that offers a lower beta—typically around 0.5–0.7 compared with a market beta of 1.0.

The Globe and Mail cites a 2023 industry report from Morningstar that found LV funds were the fastest‑growing asset class among institutional investors, a trend amplified by the recent volatility in tech and energy stocks. The article also references the Investing Crash sub‑feature (linked in the original story) that examines how broad‑market crashes have amplified the appeal of LV strategies. Investors, the piece argues, are looking for “steady‑hand” alternatives that can preserve capital when markets turn sideways or sharply downward.

2. How LV Funds Perform in Bull and Bear Markets

A central question the article tackles is the trade‑off between risk and return. In bull markets, LV funds tend to lag the benchmark. The Globe and Mail provides a 10‑year chart that shows LV funds tracking roughly 70–80 % of the S&P 500’s gains during prolonged upturns. Conversely, in bear markets, LV funds have often outperformed the broader index by 1–2 % annually, and sometimes more dramatically. The article highlights the 2022 market correction, during which LV funds fell a modest 4–5 % versus the 12–15 % drop seen in the S&P 500.

The author uses a hypothetical portfolio split between an LV fund and a market‑index fund to illustrate the smoothing effect. Over a 20‑year horizon, the composite portfolio would show a lower standard deviation (roughly 10 % lower) with only a 1.5 % reduction in CAGR. The article also cites academic research (linking to a Journal of Portfolio Management study) that confirms LV strategies can improve the Sharpe ratio for many investors.

3. The Mechanics Behind Low‑Volatility Strategies

LV funds don’t just randomly pick low‑volatility stocks; they use systematic, rules‑based models. The article walks through the typical methodology: compute each stock’s historical volatility, rank them, then weight the portfolio inversely to volatility (though some funds weight equally). The Globe and Mail explains that this process filters out “noise” in the market, allowing the fund to capture value and dividend growth in more stable companies.

A sidebar in the article compares a few popular LV funds—such as the iShares Edge MSCI Min Vol U.S. ETF (USMV) and the Invesco S&P 500 Low Volatility ETF (SPLV). It notes their expense ratios, average beta, and sector exposure. For example, USMV tends to overweight utilities and consumer staples, while SPLV has a slightly larger tilt toward financials. The Globe and Mail advises readers to examine sector allocation when choosing an LV fund, as sector performance can differ markedly during market stress.

4. Risks and Limitations of LV Funds

While LV funds offer downside protection, the article does not shy away from their shortcomings. First, the “low‑vol” label is not a guarantee of safety. The Globe and Mail warns that during systemic shocks—such as the 2020 COVID‑19 crash—LV stocks can still drop sharply, especially if the shock is macro‑wide. Second, LV funds often have lower liquidity in certain sectors, which can lead to higher bid‑ask spreads during volatile periods.

Another risk highlighted is the “beta‑adjustment bias.” Because LV funds purposely avoid high‑beta stocks, they can miss out on high‑growth companies that outperform during market rallies. The article cites a 2024 research paper (linked in the original story) that found LV funds underperformed the S&P 500 by an average of 2.5 % per year over a five‑year period, even in a stable market.

Finally, the piece touches on “performance‑based fees.” Some LV mutual funds use a performance‑fee structure that rewards managers when the fund beats the benchmark. The Globe and Mail recommends that investors scrutinize fee schedules, especially when the difference between LV and index strategies is relatively small.

5. Practical Take‑aways for Investors

The article concludes with actionable advice:

1. Diversify, Don’t Replace. LV funds should complement, not replace, broad‑market exposure. A 20‑30 % allocation can provide risk reduction without drastically cutting expected returns.

2. Pay Attention to Sector Weightings. If you prefer consumer staples, an LV fund with higher utility and staple exposure may align better with your risk profile.

3. Monitor Volatility Trends. In a period of rising market volatility, LV funds may outperform more than usual. Conversely, if volatility subsides, their relative underperformance can widen.

4. Beware of Fees. Compare expense ratios and look for funds that offer a “no‑trailing‑fee” structure, particularly if you plan to hold the fund for many years.

5. Stay Informed About Macro Events. The Globe and Mail emphasizes that LV funds are not immune to systemic shocks. Keep an eye on geopolitical risks, interest‑rate moves, and commodity price swings.

6. Broader Context and Related Articles

The Globe and Mail’s article links to several related pieces that deepen the discussion. For example, it references a Financial Post column on “The Rise of Low‑Beta Investing,” which explores how institutional investors are reallocating portfolios away from high‑beta tech giants. It also cites a Reuters interview with a portfolio manager who explains how LV funds are incorporated into long‑term retirement plans. Additionally, the “Investing Crash” sub‑feature (directly linked in the main article) provides a macro‑economic overview of the 2022 market downturn, underscoring why many investors turned to LV funds at that time.

Final Thoughts

In essence, the Globe and Mail’s feature delivers a balanced, data‑rich snapshot of low‑volatility funds in the current market landscape. It acknowledges the clear benefits—lower volatility, downside protection, and a potentially higher Sharpe ratio—while also pointing out that LV funds are not a silver bullet. For investors who prioritize stability, an LV allocation can be a valuable component of a diversified portfolio. For those chasing aggressive growth, the trade‑off may be too steep. The article’s blend of empirical evidence, expert opinion, and practical guidance makes it a valuable resource for anyone considering adding low‑volatility strategies to their investment toolkit.