Low Volatility Stocks Post The Only 2018 Gain For U.S. Equity Factors

Dec. 28, 2018 3:07 PM ETUSMV, IJR, SPY4 Comments
James Picerno profile picture
James Picerno

And then there was one. With just two trading sessions left for 2018, low volatility is alone for posting a year-to-date gain among the major US equity factors, based on a set of ETFs.

The iShares Edge MSCI Minimum Volatility USA (USMV) is up fractionally for the year through yesterday's close (Dec. 27). The fund's 0.6% total return is effectively a flat performance, but even this spare gain compares rather well against the rest of the field, which is under water in varying degrees for 2018.

The biggest year-to-date setback for the main US equity factors is in small-cap value stocks: iShares Core S&P Small-Cap (IJR) has lost a hefty 13.8% so far this year.

The prevalence of red ink across most of the equity factor scorecard is understandable, given the negative tailwind for equity beta generally. Indeed, the US stock market overall is suffering this year, based on the SPDR S&P 500 (SPY), which is down 5.3% year to date on a total-return basis.

Although nearly every corner of the US stock market is struggling as the year comes to a close, the breadth of the performance gap at the extremes of the factor horse race is striking. All the more so when you consider that small-cap value had been outperforming low volatility this year by a wide margin as recently as late-August. The subsequent reversal of fortune, however, has been swift and deep, providing low vol with a wide 14 percentage-point performance edge over small-cap value in 2018, as of yesterday's close.

Despite low vol's relatively strong performance vs. small-cap value and other slices of US equity factors, the technical profile for iShares Edge MSCI Minimum Volatility USA doesn't look particularly encouraging at the moment. A key question for the ETF in early 2019: will the 50-day moving average for USMV succumb

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James Picerno profile picture
James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers. Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg Markets, Mutual Funds, Modern Maturity, Investment Advisor, Reuters, and his popular finance blog, The CapitalSpectator. Visit: The Capital Spectator (www.capitalspectator.com)

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