Interesting to see some investors publicly reacting to the "mathiness" of investment products and specifically dismissing the opportunity for better performance through more optimal methods of portfolio construction.
So far optimized portfolios are punching above their weight.
So far optimized portfolios are punching above their weight.
Comparing the performance of Min Vol products vs lowest cost cap-weighted products we see that Min Vol ETFs have dominated lower cost cap-weighted ETFs in compound returns, risk-adjusted returns, drawdowns, and alpha to respective benchmarks since inception in late 2011.
Only exception is US equities where US Total Market has outperformed by 0.3% compound.
However US Min Vol has higher Sharpe ratio, much lower volatility and drawdowns, and 10% per year in alpha since inception.
However US Min Vol has higher Sharpe ratio, much lower volatility and drawdowns, and 10% per year in alpha since inception.
I fully expect this outperformance by minimum variance portfolios to continue as it is not obvious how the effect is arbitraged away.
Lots more on why here:
investresolve.com/portfolio-opti…
Lots more on why here:
investresolve.com/portfolio-opti…
Note: The MSCI min vol products have a wide variety of constraints to maximize investible capacity.
The products probably underrepresent what can be achieved through more robust optimization where capacity constraints are relaxed.
cc: @MichaelEdesess @iimag
The products probably underrepresent what can be achieved through more robust optimization where capacity constraints are relaxed.
cc: @MichaelEdesess @iimag
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