This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Low Volatility Funds Prove Resilient

NEW YORK ( TheStreet) -- When the market crashed in 2008, it paid to own steady funds, such as American Century Equity Income (TWEIX) and Vanguard Dividend Growth (VDGIX). Holding reliable blue chips, the low-volatility funds lost less than their peers during the downturn. But in 2009, the Steady Eddies trailed as markets soared and investors preferred riskier stocks.

Now that markets have moved to firmer ground, should you dump the steady funds? Probably not. Researchers have shown that steady stocks deliver competitive returns while excelling in downturns. "It makes sense to have a low-volatility tilt in a portfolio," says Andrea Frazzini, vice president of money manager AQR Capital Management.

Frazzini says that many academic studies have looked at high-volatility stocks, which bounce around more than the overall market. The volatile stocks take plenty of risk, but they don't necessarily outperform low-volatility stocks over the long term.

Researchers offer a variety of explanations for why low-volatility stocks excel. One explanation is that many steady stocks are reliable blue chips, such as Exxon Mobil (XOM) and Procter & Gamble (PG).

>> Keep the stock market at your fingertips with TheStreet's iPad app.

These familiar names are often considered dull, so their prices may remain modest. Because the prices are low, the long-term returns are relatively strong. In contrast, volatile stocks include glamorous technology and growth shares, which promise to deliver big earnings gains. However, because investors bid up the prices of volatile stocks, the long-term returns may be meager.

To add a low-volatility choice to your portfolio, consider First Eagle US Value (FEVAX). Besides picking solid undervalued shares, the fund also reduces risk by holding some cash. That helped First Eagle outdo the S&P 500 by 14 percentage points during the downturn of 2008.

Limiting losses, the fund returned 6.3% annually during the past five years, outdoing 95% of peers in the large blend category, according to Morningstar. These days portfolio manager Abhay Deshpande is holding some gold as an insurance policy against market surprises. His stock holdings include rock-solid companies, such as Microsoft (MSFT) and 3M (MMM).

Another low-volatility fund that shined during the erratic markets of recent years is Amana Trust Income (AMANX). Portfolio manager Nick Kaiser likes high-quality dividend-paying stocks, such as Illinois Tool Works (ITW) and PepsiCo (PEP). When markets look threatening, Kaiser can hold cash. During 2008, he kept as much as 30% of assets in cash. That enabled him to outdo 99% of his large blend peers for the year.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
SPLV $37.21 0.00%
AAPL $94.02 0.00%
FB $104.07 0.00%
GOOG $683.57 0.00%
TSLA $162.60 0.00%


Chart of I:DJI
DOW 16,204.97 -211.61 -1.29%
S&P 500 1,880.05 -35.40 -1.85%
NASDAQ 4,363.1440 -146.4150 -3.25%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs